USD/JPY Forecast: BoJ’s Dilemma and US GDP Data on the Radar

Interventions, the Bank of Japan, and the USD/JPY

On Thursday, April 25, an amplified threat of an intervention to bolster the Yen could influence buyer demand for the USD/JPY. The USD/JPY broke through the 155 threshold on Wednesday (April 24), with the markets considering 155 as the intervention zone.

Nevertheless, the Japanese government has remained on the sidelines despite the USD/JPY return to 155. The government may wait for the Bank of Japan to deliver its monetary policy decision on Friday.

Previously, Bank of Japan Governor Kazuo Ueda and board members have warned against bets on further rate hikes. However, the weaker Yen could complicate matters for the Bank of Japan. The BoJ is eying wage hikes to drive consumer spending and demand-driven inflation.

A weaker Japanese Yen raises import costs and consumer prices, impacting household spending and the economy. Private consumption contributes over 50% of the Japanese economy. More hawkish forward guidance during the Friday Bank of Japan press conference could bolster the Yen.

However, the Bank of Japan could be mindful of the likely effect of an interest rate hike on household spending. A more hawkish rate path could raise borrowing costs, reducing disposable income. Downward trends in disposable income could impact consumer spending and dampen demand-driven inflation.

The Bank of Japan may influence buyer demand for the USD/JPY. Nevertheless, interest rate differentials and carry trades will likely continue to favor the US dollar. The Japanese government may have to deliver on its threats to intervene to bolster the Yen.

US Q1 2024 GDP, Jobless Claims Numbers, and the USD/JPY

Later in the session, US GDP numbers for Q1 2024 and the weekly jobless claims figures warrant investor attention.

Economists forecast the US economy to grow by 2.5% in Q1 2024 after expanding by 3.4% in Q4 2023.

A hotter-than-expected US economy could further impact investor bets on a September Fed rate cut. A higher-for-longer Fed rate path would affect borrowing costs and reduce disposable income. Downward trends in disposable income could impact consumer spending and dampen demand-driven inflation.

Private consumption contributes over 60% to the US economy. A less robust US economy could also dampen housing services sector inflationary pressures. Chicago Fed President Austan Goolsbee recently cited household services inflation as the stumbling block to bringing inflation to the 2% target.

Other economic indicators include jobless claims and pending home sales figures. However, barring an unexpected spike in US jobless claims, the market focus will likely be on the GDP report.

Short-term Forecast

Near-term trends for the USD/JPY remain hinged on inflation numbers from Japan and the US and the Bank of Japan. Softer-than-expected inflation numbers from Japan could leave the Bank of Japan in a holding pattern vis-à-vis monetary policy. A hotter-than-expected US Personal Income and Outlays Report could tilt monetary policy divergence toward the US dollar. Nevertheless, a Japanese government intervention would overshadow the stats.

USD/JPY Price Action

Daily Chart

The USD/JPY sat well above the 50-day and 200-day EMAs, confirming the bullish price trends.

A USD/JPY break above the April 24 high of 155.374 could support a move to the 156 handle.

Investors should consider the Bank of Japan commentary, intervention threats, and US GDP numbers.

Conversely, a USD/JPY drop below the 155 handle could bring the 151.685 support level and the 50-day EMA into view. Buying pressure could increase at the 151.685 support level. The 50-day EMA is confluent with the support level.

The 14-day RSI at 77.12 shows the USD/JPY in overbought territory. Selling pressure could intensify at the April 24 high of 155.374.