USD/JPY Weekly Forecast: Inflation Trends, Central Bank Chatter, and 152

Weekly Overview of the USD/JPY in the Week Ending April 5, 2024

The USD/JPY gained 0.19% in the week ending April 5, closing the week at 151.607. The USD/JPY rose to a Wednesday high of 151.951 before falling to a Friday low of 150.809.

USD/JPY Analysis: Wage Growth Trends, Consumer Confidence, and Producer Prices

On Monday, wage growth trends from Japan will draw investor interest. Economists forecast average cash earnings to increase 1.4% year-on-year in February after rising 2.0% in January. Upward trends in wage growth could fuel consumer spending and demand-driven inflation. A buildup in demand-driven inflationary pressures could influence the Bank of Japan rate path.

While the figures will draw interest, softer-than-expected cash earnings may have a limited impact on the Yen. Spring wage hikes enabled the Bank of Japan to pivot from negative rates in March.

On Tuesday, consumer confidence figures for March will warrant investor interest. An increase in consumer confidence could signal a pickup in consumer spending. The March report may reflect the effects of wage hikes on consumer sentiment. Economists forecast the Consumer Confidence Index to increase from 39.1 to 40.0.

Additionally, machinery tool orders will also need consideration. The BoJ remains cautious about the macroeconomic backdrop. Weaker machinery order trends could temper bets on a near-term BoJ move away from zero rates. Economists forecast machinery orders to fall 5.0% year-on-year in March after declining by 8.0% in February.

On Wednesday, producer prices will put inflation in focus. Upward trends in producer prices could signal a pickup in consumer prices. Producers may raise prices in an increasing demand environment. Economists expect producer prices to increase 0.8% year-on-year in March after rising 0.6% in February.

Other stats include finalized industrial production figures for February. Unless there is a marked adjustment to the preliminary industrial production data, the machinery tool order numbers could impact the USD/JPY more.

The Bank of Japan and Intervention Threats

Beyond the numbers, investors must consider Bank of Japan chatter and intervention threats from the Japanese government. Bank of Japan Governor Kazuo Ueda is on the calendar to speak on Wednesday. Support to keep rates at zero could impact buyer demand for the Yen and force the Japanese government to threaten an intervention.

152 remains the line in the sand vis-a-vis an intervention.

US Economic Calendar: US Inflation, Consumer Sentiment, and Fed Speakers

On Wednesday, the all-important US CPI Report will garner investor attention. After the hotter-than-expected US Jobs Report, sticky inflation could impact bets on a June Fed rate cut. Tighter labor market conditions could support wage growth and consumer spending.

A pickup in consumer spending could fuel demand-driven inflation. A higher-for-longer Fed rate path could raise borrowing costs and reduce disposable income. Downward trends in disposable income could affect consumer spending and dampen demand-driven inflation.

Economists forecast the annual core inflation rate to ease from 3.8% to 3.7% in March. Moreover, economists expect the inflation rate to rise from 3.2% to 3.4%.

With inflation in the spotlight, producer price numbers for March also need consideration on Thursday. Economists consider producer prices as a leading indicator of consumer price trends. Producers raise prices in an improving demand environment, passing price hikes onto consumers.

Economists expect US producer prices to increase 2.3% year-on-year after rising 1.6% in February.

While US inflation is the focal point, weekly jobless claims figures could influence views about the US labor market. Another increase in jobless claims could signal a deteriorating labor market environment. Economists forecast initial jobless claims to fall from 221k to 215k in the week ending April 6.

Consumer Confidence and the Fed

On Friday, preliminary Michigan Consumer Sentiment figures will be in focus. An unexpected pickup in consumer confidence could signal consumer plans to loosen the purse strings. Economists forecast the Michigan Consumer Sentiment Index to decline from 79.4 to 79.0 in April.

Investors must also consider the sub-components, including inflation expectations.

Beyond the numbers, FOMC member speeches need monitoring. FOMC members Neel Kashkari (Tues), Michelle Bowman (Wed), Austan Goolsbee (Wed), John Williams (Thurs), Susan Collins (Thurs), Raphael Bostic (Thurs/Fri), and Mary Daly (Fri) are on the calendar to speak. Reactions to the US Jobs Report and US CPI Report may influence investor bets on a June Fed rate cut.

Short-term Forecast

Near-term USD/JPY trends will hinge on central bank chatter, inflation, and consumer confidence numbers. Sticky US inflation figures and hawkish Fed chatter could sink bets on a June Fed rate cut. A higher-for-longer Fed rate path could tilt monetary policy divergence more toward the US dollar. However, BoJ chatter about raising interest rates from zero could sink the USD/JPY.

Japanese government threats to intervene may intensify if the USD/JPY nears 152.

USD/JPY Price Action

Daily Chart

The USD/JPY hovered comfortably above the 50-day and 200-day EMAs, sending bullish price signals.

A USD/JPY break above the 151.685 resistance level would support a move to the 152 handle. However, the USD/JPY must break down resistance at last week’s high of 151.951 as intervention threats linger.

Fed and BoJ chatter, inflation, and consumer confidence are focal points.

However, a drop below 150.500 handle could give the bears a run at the 50-day EMA. A fall through the 50-day EMA would bring the 148.529 support level into play.

The 14-day RSI at 62.34 indicates a USD/JPY move to the 152 handle before entering overbought territory.