USD/JPY Forecast: Fed Rate Path, Consumer Confidence, and BoJ Intervention Dynamics

Intervention Threats and the Bank of Japan

On Friday, the Bank of Japan and the Japanese government will continue to impact buyer demand for the USD/JPY. Holding onto the 153 handle, the weaker Yen could incentivize the Japanese government to intervene.

The weaker Yen may also influence the Bank of Japan rate path. Rising import prices, stemming from the Yen slump, would drive inflation higher, affecting household spending and the economy. Private consumption accounts for over 50% of the Japanese economy.

A weaker economic outlook would also influence wage growth trends that could further impact private consumption.

Additionally, weaker growth forecasts would likely leave the USD/JPY at current levels as expectations of another BoJ rate hike fade.

US Economic Calendar: Consumer Confidence and Fed Chatter

On Friday, US consumer confidence figures for April will garner investor attention. Economists expect the Michigan Consumer Sentiment Index to decline from 79.4 to 79.0. Weaker-than-expected numbers could influence investor sentiment toward the Fed rate path.

Beyond the headline figure, investors must consider the sub-components, including inflation expectations. Economists expect the Inflation Expectations Index to decline from 2.9% to 2.8%.

A deterioration in consumer confidence could impact consumer spending. Downward trends in consumer spending would dampen demand-driven inflation. A softer inflation outlook could enable the Fed to cut interest rates. Moreover, downward trends in consumer spending would test bets on the US avoiding an economic recession. Private consumption contributes over 65% to the US economy.

With inflation and consumer confidence in the spotlight, investors must monitor FOMC member speeches. Reactions to the recent inflation numbers and forward guidance on monetary policy could move the dial. FOMC members Raphael Bostic and Mary Daly are on the calendar to speak.

Short-term Forecast

Near-term trends for the USD/JPY hinge on US consumer sentiment numbers, Fed forward guidance, and the Japanese government. An unexpected rise in consumer sentiment could further impact bets on a June 2024 Fed rate cut. However, Japanese government interventions could overshadow the influence of US economic data and Fed speeches.

USD/JPY Price Action

Daily Chart

The USD/JPY remained comfortably above the 50-day and 200-day EMAs, confirming the bullish price trends.

A USD/JPY break above the April 11 high of 153.317 could give the bulls a run at the 154 handle.

The Bank of Japan, the Japanese government, US consumer sentiment numbers, and FOMC member chatter need consideration.

Conversely, a USD/JPY fall through the 152.500 handle would bring the 151.685 support level into play.

The 14-day RSI at 69.25 suggests a USD/JPY move to the 153.500 handle before entering overbought territory.