USD/JPY Forecast: Inflation Figures Drive Speculation on BoJ’s Negative Rates Exit

USD/JPY Movement on Monday

The USD/JPY gained 0.13% on Monday. Reversing a 0.02% loss from Friday, the USD/JPY ended the Monday session at 150.686. The USD/JPY fell to a low of 150.290 before rising to a Monday high of 150.839.

Japan Inflation Impacts Bets on a Bank of Japan Pivot from Negative Rates

On Tuesday, inflation numbers from Japan warranted investor attention. The annual inflation rate fell from 2.6% to 2.2%, with the core inflation rate down from 2.3% to 2.0%. Economists forecast annual and core inflation rates of 2.1% and 1.8%, respectively.

The latest figures impacted investor bets on a Bank of Japan pivot from negative rates. A core inflation rate of 2.0% could keep pressure on the BoJ to exit negative rates. Before the inflation number, a Reuters poll showed that 80% of analysts expected the BoJ to exit negative rates in April.

Nonetheless, BoJ warnings that monetary policy would remain accommodative after exiting negative interest rates resonated. Despite the hotter-than-expected inflation figures, the USD/JPY held onto the 150.500 handle.

Beyond the numbers, investors must monitor Bank of Japan reaction to the inflation figures. Support to exit negative rates could further impact buyer demand for the USD/JPY.

US Economic Calendar: Consumer Confidence and Fed Speakers in Focus

On Tuesday, US consumer confidence will be under the spotlight. Weaker-than-expected consumer confidence could signal a pullback in consumer spending. Downward trends in consumer spending may dampen demand-driven inflation and raise bets on a May Fed rate cut.

Economists forecast the CB Consumer Confidence Index to remain steady at 114.8 in February. A drop below 110 could affect sentiment toward the timeline for a Fed rate cut.

Other stats include durable goods orders and house price figures. However, these will likely play second fiddle to the consumer confidence numbers.

Beyond the economic data, FOMC member chatter also needs consideration. FOMC member Michael Barr is on the calendar to speak. Views on inflation and the timeline for rate cuts would move the dial.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on US inflation numbers. After the inflation figures from Japan, sticky US inflation numbers could tilt monetary policy divergence toward the US dollar. However, intervention threats may cap the upside for the USD/JPY.

USD/JPY Price Action

Daily Chart

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

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

Central bank chatter and US economic data need consideration.

However, a drop below the 150.201 support level would bring the 148.405 support level into play.

The 14-day RSI at 63.94 suggests a USD/JPY return to the 151 handle before entering overbought territory.

4-Hourly Chart

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

A USD/JPY move to the 151 handle would bring the 151.889 resistance level into play.

However, a fall through the 50-day EMA and the 150.201 support level would give the bears a run at the 148.405 support level. Buying pressure could intensify at the 150.201 support level. The 50-day EMA is confluent with the support level.

The 14-period 4-hour RSI at 53.79 indicates a USD/JPY move to the 151.889 resistance level before entering overbought territory.