USD/JPY Forecast: Eyes on FOMC Press Conference and Yen’s Fate

Jibun Bank Manufacturing PMI and the Bank of Japan

On Wednesday (May 1), finalized Jibun Bank Manufacturing PMI numbers from Japan will draw interest.

According to the preliminary survey, the Manufacturing PMI rose from 48.2 to 49.9 in April. An upward revision to preliminary numbers would drive buyer demand for the Yen.

The manufacturing sector contributes less than 20% to the Japanese economy. Nevertheless, an improving macroeconomic backdrop could increase consumer confidence and spending. The Bank of Japan is eyeing the recent wage hikes to fuel consumer spending and demand-driven inflation.

A pickup in inflationary pressures could allow the Bank of Japan to begin discussions about interest rate hikes.

In addition to the data, investors should pay attention to statements from the Bank of Japan and the Japanese government. Views from the BoJ on the effects of a weaker Yen on inflation, consumption, and monetary policy need consideration. After the retreat from 160, a USD/JPY move through the 158 handle could force the government to reissue an intervention threat.

US Economic Calendar: The ADP, JOLTs Job Openings, and the Fed

Later in the Wednesday session, US ADP nonfarm employment and JOLTs Job Openings will attract investor interest. A weaker labor market environment could slow wage growth and reduce disposable income. Consumers could respond by curbing spending on non-essential items, dampening demand-driven inflation.

A softer inflation outlook could raise investor bets on a September Fed rate cut.

While the economic indicators need consideration, the FOMC interest rate decision and press conference are the focal points. Recent US economic indicators, including inflation and employment costs, sank investor expectations of a September rate cut. A hawkish Fed Chair Powell press conference could further drive buyer demand for the USD/JPY.

According to the CME FedWatch Tool, the chances of the Fed leaving interest rates unchanged jumped from 42.5% to 54.9% on Tuesday (April 30).

Short-term Forecast

Near-term trends for the USD/JPY hinge on US labor market data and the FOMC press conference. US wage trends and inflation data support a more hawkish Fed rate path. Better-than-expected US labor market data and a hawkish Fed could send the USD/JPY back toward 160.

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 breakout from the 158 handle would give the bulls a run at the April 29 high of 160.209.

Bank of Japan commentary, US labor market data, and the FOMC press conference need consideration.

Conversely, a USD/JPY fall through the 156 handle would bring the 50-day EMA and the 151.685 support level into view.

The 14-day RSI at 71.92 shows the USD/JPY in overbought territory. Selling pressure could increase at the 158 handle.