USD/JPY Forecast: Eyes on US Housing Data Amid BoJ Rate Pivot Chatter

USD/JPY Movement on Friday

The USD/JPY slipped by 0.02% on Friday. After a 0.16% gain on Thursday, the USD/JPY ended the day at 150.487. The USD/JPY rose to a high of 150.768 before falling to a Friday low of 150.289.

The Bank of Japan, The Pivot, and Inflation

On Monday, the Bank of Japan and plans to exit negative interest rates remain the focal points. Last week, Bank of Japan Governor Ueda talked about rising inflation, giving the spring wage negotiations more weightage.

Despite the Japanese economy falling into a technical recession in Q4, the markets anticipate a Bank of Japan pivot from negative rates in April.

On Thursday, a Reuters poll revealed that 80% of analysts expect the BoJ to pivot from negative rates in April. Nonetheless, the outlook for the Yen remains uncertain.

Bank of Japan Governor Ueda warned that monetary policy would remain accommodative even after exiting negative rates. Deputy Governor Shinichi Uchida said recently that the BoJ would not rapidly raise interest rates after a pivot from negative rates. Warnings about a dovish rate path left the USD/JPY within tight ranges.

Notably, Government threats of an intervention to bolster the Yen limited the upside for the USD/JPY.

On Monday, there are no economic statistics from Japan to consider before the release of inflation numbers on Tuesday. However, investors should pay attention to Bank of Japan comments regarding the exit from negative rates.

US Economic Calendar: House Prices, Manufacturing, and the Fed

On Monday, housing and manufacturing sector data will garner investor interest.

The US housing sector remains a litmus test of the US economy. Home sales and price trends influence consumer sentiment and spending. An upward trend in home sales and prices could signal a pickup in consumer spending. Higher consumer spending trends could fuel demand-driven inflation and delay the timeline for a Fed rate cut.

Economists forecast new home sales to increase by 0.9% in January after jumping 8% in December.

However, investors must also consider the Dallas Fed Manufacturing Index for February. Economists forecast the Index to increase from -27.4 to -8.0. The Index fell to -27.4 in January, the lowest since June 2023.

An unexpected decline could test bets on a soft landing. The manufacturing sector accounts for less than 30% of the US economy. However, investors are sensitive to cracks forming in the US economy.

Beyond the numbers, investors must track FOMC member speeches. Reaction to recent inflation reports and views on inflation and rate cuts would move the dial.

Short-term Forecast

Near-term trends for the USD/JPY will likely hinge on inflation figures. Inflation numbers for Japan and the US are out on Tuesday and Thursday, respectively. While the markets expect the BoJ to exit negative rates in April, sticky US inflation numbers could delay a Fed rate cut. A pullback in bets on an H1 2024 Fed rate cut could tilt monetary policy divergence toward the US dollar.

USD/JPY Price Action

Daily Chart

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

A USD/JPY move through the 150.500 handle would bring the 151.889 resistance level into play.

Central bank chatter and US economic data need consideration.

However, a break below the 150.201 support level would give the bears a run at the 148.405 support level.

The 14-day RSI at 63.90 indicates a USD/JPY move to the 151 handle before entering overbought territory.

4-Hourly Chart

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

A USD/JPY return to the 151 handle would support a move to the 151.889 resistance level.

However, a break below the 150.201 support level and the 50-day EMA would support a fall toward the 148.405 support level.

The 14-period 4-hour RSI at 52.77 suggests a USD/JPY return to the 151.889 resistance level before entering overbought territory.