USD/JPY Forecast: Eyes on US Producer Prices Amid BoJ Intervention Speculations

The Bank of Japan, Interventions, and Geopolitical Risk

On Thursday, the USD/JPY will likely sit in the hands of the Japanese government. The overnight US CPI Report sent the USD/JPY to a high of 153.239. Investors previously considered 152 as the line in the sand for the government.

With US producer prices in focus later today, further USD/JPY gains could be on the horizon. The prospect of more Yen weakness could incentivize the government to bolster the Yen. Failure to intervene could adversely impact buyer appetite for the Yen. Before the US CPI Report, the USD/JPY moved sideways for fourteen sessions as intervention threats capped gains for the USD/JPY.

While interventions will likely be the main topic, Bank of Japan commentary also needs consideration. This week, Bank of Japan Governor Kazuo Ueda warned the BoJ may need to adjust monetary policy if Yen movements raise import prices and the risk of driving inflation more than anticipated. However, Governor Ueda also said the BoJ would not amend monetary policy for FX movements in isolation.

Amidst increasing expectations of an intervention, tensions in the Middle East could fuel buyer demand for the Yen.

However, there are no economic indicators from Japan for investors to consider.

US Economic Calendar: Producer Prices and the Federal Reserve

On Thursday, US inflation will remain in focus. US producer prices warrant investor attention after the US CPI Report. Economists consider producer prices as a leading indicator of consumer price inflation. Producers raise prices in a higher-demand environment, passing costs onto consumers.

Hotter-than-expected producer prices would further impact investor bets on a 2024 Fed rate cut. A higher-for-longer Fed rate path could increase borrowing costs, reducing disposable income. Downward trends in disposable income could curb consumer spending and dampen demand-driven inflation.

Economists forecast US producer prices to increase 2.2% year-on-year in March after rising 1.6% in February. Moreover, economists predict core producer prices to advance by 2.3% year-on-year. Core producer prices were up 2.0% in February.

Beyond the inflation numbers, US jobless claims figures will also be in focus. However, barring an unexpected spike in initial jobless claims, the jobless claims will likely play second fiddle to the inflation report.

With inflation in focus, FOMC member chatter also needs monitoring. FOMC member reactions to the inflation numbers could move the dial. FOMC members John Williams, Susan Collins, and Raphael Bostic are on the calendar to speak.

Short-term Forecast

Near-term trends for the USD/JPY hinge on US producer prices, FOMC member chatter, and the Japanese government. Hotter-than-expected US producer prices could further tilt monetary policy divergence toward the US dollar. However, a Japanese government intervention to bolster the Yen could overshadow the influence of US data.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to the April 10 high of 153.239 could support a move to the 154 handle.

The Japanese government, US producer prices, and Fed commentary need consideration.

Conversely, a USD/JPY drop below the 152 handle would give the bears a run at the 151.685 support level.

The 14-day RSI at 68.53 indicates a USD/JPY move return to the 153 handle before entering overbought territory.