USD/JPY Forecast: Yen Weakness Sparks Intervention Concerns Ahead of Fed Talks

USD/JPY Movement on Friday

The USD/JPY declined by 0.13% on Friday. Partially reversing a 0.23% gain from Thursday, the USD/JPY ended the session at 151.406. The USD/JPY rose to a high of 151.862 before falling to a Friday session low of 151.001.

The Bank of Japan and Interventions

On Monday, the Bank of Japan was in the spotlight early in the session. The Monetary Policy Meeting Minutes from the January meeting were out. However, investors largely ignored the Meeting Minutes. The BoJ exited negative interest rates in March, hiking rates for the first time in 17 years.

Intervention chatter continued to hit the news wires.

Masato Kanda, Japan’s vice Finance Minister for International Affairs, stated he is closely monitoring currency movements. Kanda viewed the weakness in the Yen as speculative, believing current levels did not reflect fundamentals. The vice Finance Minister for International Affairs also pointed out that excessive moves are of more concern than levels.

There are no stats from Japan for investors to consider on Monday. The lack of stats will leave intervention chatter and the Bank of Japan in focus.

US Economic Calendar: Dallas, Chicago, the Housing Sector, and the Fed

On Monday, the Chicago Fed National Activity Index and the Dallas Fed Manufacturing Index will garner investor interest.

Economists expect the Chicago Fed National Activity Index to fall by 0.9% in February after declining by 0.3% in January. However, economists forecast the Dallas Fed Manufacturing Index to increase from -11.3 to -8.0 in March. The more current March numbers could impact the AUD/USD more.

Hopes of a US soft landing contributed to the USD/JPY return to the 151 handle. However, weaker US data may support bets on an H1 2024 Fed rate cut and impact buyer demand for the US dollar. Weak US economic indicators could retrigger fears of a hard landing.

Moreover, US housing sector data also needs consideration. Economists consider housing sector data as a leading indicator for the US economy.

Upward trends in housing sector-related data could signal a pickup in consumer confidence. Consumer confidence could fuel consumer spending and demand-driven inflation. Demand-driven inflationary pressures could leave the Fed in a holding pattern. A higher-for-longer rate path may reduce disposable income and curb consumer spending.

Economists forecast new home sales to increase by 3.0% in February after rising by 1.5% in January.

Beyond the numbers, investors must track Fed chatter. FOMC members Lisa Cook and Raphael Bostic are on the calendar to speak. Deviations from the FOMC Economic Projections could move the dial.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on inflation numbers and central bank chatter.

This week, inflation numbers from Japan and the US will impact the BoJ and Fed rate paths. However, hotter-than-expected inflation numbers from the US could tilt monetary policy divergence toward the US dollar. Interest rate differentials and the outlook for carry trades support the USD/JPY at current levels.

USD/JPY Price Action

Daily Chart

The USD/JPY remained well above the 50-day and 200-day EMAs, affirming the bullish price signals.

A USD/JPY break above the 151.685 resistance level would support a move to the 152 handle.

Intervention chatter, US economic data, and Fed comments need consideration.

Conversely, a USD/JPY fall through the 150 handle could give the bears a run at the 50-day EMA and the 148.529 support level.

The 14-day RSI at 64.45 suggests a USD/JPY move to the 152 handle before entering overbought territory.