Japanese Yen Forecast: Will US CPI and Powell’s Testimony Push USD/JPY Below 150?

USD/JPY Extends Losing Streak to Four Weeks Amid BoJ Rate Hike Bets

Here’s what traders need to know as the USD/JPY pair tumbled 2.43% in the week ending February 7, closing at 151.390.

The USD/JPY pair briefly climbed to a high of 155.880 before sliding to a low of 150.925. Last week’s moves reflected increasing speculation about a potential Bank of Japan (BoJ) rate hike.

Key Economic Data Fuels BoJ Rate Hike Speculation

Economic data from Japan, including wage growth and household spending, have intensified market expectations for a BoJ policy move. Traders should now turn their attention to upcoming data releases, including machine tool orders and producer prices, which may offer more clues on Japan’s economic outlook.

Machine Tool Orders and Demand Trends

On February 12, machine tool orders will provide insights into Japan’s industrial demand environment. Economists forecast orders to rise 1.6% year-on-year in January, down from 11.2% in December.

A smaller-than-expected increase may signal a pullback in business investment and industrial production. Downward trends could indicate weaker employment across the manufacturing sector, potentially affecting wage growth. Softer wage growth could curb consumer spending and dampen demand-driven inflationary pressures.

Conversely, larger-than-expected demand for tools could suggest robust production, supporting the labor market and wage growth, a key metric for the BoJ.

Japan Producer Prices and the BoJ Rate Path

While economists consider machine tool orders a barometer of Japan’s manufacturing sector, producer prices will likely impact the USD/JPY pair more. Producer prices are a leading indicator of inflation since producers adjust prices according to demand.

Economists expect producer prices to rise 4% year-on-year in January, up from 3.8% in December.

Rising producer prices would signal higher demand, enabling producers to pass costs on to customers. This, in turn, could fuel demand-driven inflationary pressures. Conversely, producers may lower prices if demand weakens, potentially softening inflationary pressures.

Forecasts support expectations for a Bank of Japan rate hike, potentially boosting demand for the Japanese Yen.

Potential USD/JPY Moves

Japan’s producer prices and speculation about a BoJ rate hike will be key drivers of USD/JPY trends.

• Rising producer prices and hawkish sentiment toward the BoJ rate path could pull the USD/JPY pair below 150.
• Weaker producer prices and BoJ caution against a near-term rate hike could drive the pair toward 155.

Expert Views on the Bank of Japan’s Rate Outlook

Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, commented on Japan’s wage growth figures:

“Japanese wages growth remains up…supporting the case for further gradual BoJ tightening.”

Average cash earnings increased 4.8% year-on-year in December after rising 3.9% in November. Wage trends remain a key focal point for the BoJ as it plans a move toward policy normalization.

Will the US CPI Report and Retail Sales Slam the Door on Fed Rate Cut Expectations?

Shifting focus to the US, the crucial US CPI Report on February 12 will influence sentiment toward the Fed rate path. Economists forecast the core inflation rate to ease to 3.1% in January, down from 3.2% in December.

A softer inflation reading may revive investor hopes for an H1 2025 Fed rate cut. Conversely, resilient inflation could signal a more hawkish Fed rate path, boosting US dollar demand.

Additionally, US producer prices will also draw interest on February 13. Economists forecast producer prices to rise 3.4% year-on-year in January, up from 3.3% in December. A higher-than-expected reading could signal a pickup in inflationary pressures, potentially overshadowing a softer CPI Report.

On February 14, US retail sales could provide traders with further insights into potential consumer price trends. Economists forecast retail sales to rise 3.7% year-on-year in January, down from 3.9% in December. A softer reading may dampen demand-driven inflation, supporting a more dovish Fed rate path. Conversely, a pickup in consumer spending may drive consumer prices higher, indicating a hawkish Fed policy stance.

Beyond the economic data, Fed Chair Powell’s testimony on Capitol Hill will be the main event. Powell will deliver the Semiannual Monetary Policy Report to Congress on February 11 and 12. His views on the US labor market, inflation, and US tariffs will dictate sentiment toward the Fed rate path.

For USD/JPY trends, a more hawkish Fed outlook may drive the USD/JPY pair above 155. Conversely, a dovish Fed stance could pull USD/JPY below 150.

Short-term Forecast:

USD/JPY trends hinge on:

• Japan’s inflation data and the BoJ’s forward guidance.
• US inflation, Fed policy expectations, Powell’s testimony.
• Market sentiment on global economic risks, including US tariffs.

While rising bets on a BoJ rate hike could pressure the USD/JPY, a more hawkish Fed may widen the US-Japan interest rate differential in favor of the US dollar.

USD/JPY Price Action

Daily Chart

Following last week’s sell-off, the USD/JPY remains below the 50-day and 200-day EMAs, sending bearish price signals.

A USD/JPY break above the 200-day EMA would support a move toward the 50-day EMA. A breakout from the 50-day EMA may enable the bulls to target the 156.884 resistance level next.

Conversely, a USD/JPY drop below the February 7 low of 150,925 could bring the 149.358 support level into sight.

The 14-day Relative Strength Index (RSI) at 32.02 suggests a USD/JPY fall to the 149.358 support level before entering oversold territory (RSI below 30).

Final Thoughts

Investors should monitor real-time data, central bank signals, and expert commentary. Real-time updates on inflation trends, central bank rhetoric, and technical patterns will be critical for navigating price action.

For deeper insights, view our latest USD/JPY chart analysis for technical insights here.