USD/JPY Forecast: BoJ Minutes, Consumer Confidence, and US Labor Data Analysis

The Bank of Japan Monetary Policy Meeting Minutes and Consumer Confidence

On Thursday (May 2), the Bank of Japan Monetary Policy Meeting Minutes will garner investor interest. The Minutes are from the March monetary policy decision when the BoJ exited negative rates. While dated, the Minutes could give investors clues on the BoJ requirements for further interest rate hikes.

On Friday, April 26, the Bank of Japan voted unanimously to leave monetary policy unchanged.

Although the Minutes will attract investor attention, the impact of Japanese consumer confidence figures on USD/JPY may be more significant.

Economists forecast the Consumer Confidence Index to increase from 39.5 to 39.7 in April. Beyond the headline number, investors should consider the sub-components, including employment, income growth, price expectations, and the willingness to buy durable goods.

An improving consumer confidence environment could signal a pickup in consumer spending. Upward trends in consumer spending could fuel demand-driven inflation. A higher inflation trend could enable the Bank of Japan to discuss interest rate hikes to ensure price stability.

Tighter labor market conditions could support income growth and the willingness to buy durable goods. Moreover, the markets will likely reflect on price expectation trends. In the March 2024 survey, 92.4% of consumers expected prices to increase in the year ahead.

US Economic Calendar: Unit Labor Costs and Nonfarm Productivity

Later in the Thursday session, unit labor costs and nonfarm productivity figures will attract investor attention.

Economists forecast unit labor costs to increase by 3.3% in Q1 2024 after rising by 0.4% in Q4 2023. Moreover, economists expect nonfarm productivity to advance by 0.8% in Q1 2024 after increasing by 3.2% in Q4 2023.

Unit labor costs could influence investor expectations of a September Fed rate cut more as a leading indicator of inflation. Firms pass labor costs onto consumers in a higher-demand environment. The Fed may respond to higher labor costs with a more hawkish Fed interest rate trajectory.

However, nonfarm productivity figures will also affect the Fed rate path. Weaker-than-expected figures could signal a deteriorating macroeconomic environment and a possibly weaker consumption outlook.

Other stats include the weekly jobless claims, factory orders, and trade data. Barring an unexpected slump in US factory orders and a spike in jobless claims, the numbers will likely have a limited impact on the USD/JPY.

Short-term Forecast

Near-term trends for the USD/JPY hinge on consumer confidence numbers from Japan and the US Jobs Report. However, a marked improvement in consumer confidence across Japan could tilt monetary policy divergence toward the Yen. The Fed poured cold water on further interest rate hikes. In contrast, the BoJ could respond to an upward trend in household spending.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to the 158 handle would support a move toward the April 29 high of 160.209.

The BoJ Minutes, Japanese consumer confidence figures, and US labor market data need consideration.

Alternatively, if USD/JPY drops below the 154 handle, the bears may attempt to test the 50-day EMA. A fall through the 50-day EMA would bring the 151.685 support level into play.

The 14-day RSI at 56.42 suggests a USD/JPY return to the 158 handle before entering overbought territory.