USD/JPY Forecast: Japanese Machine Tool Orders and BoJ Pivot Bets

Highlights

• The USD/JPY fell by 0.27% on Friday, ending the session at 144.872.
• US producer price figures for December raised bets on a March Fed rate cut, impacting the US dollar.
• On Monday, the focus will be on machine tool orders from Japan, the Bank of Japan, and FOMC member commentary.  

USD/JPY Movements on Friday

The USD/JPY fell by 0.27% on Friday. Following a 0.34% loss on Thursday, the USD/JPY ended the session at 144.872. The USD/JPY rose to a high of 145.565 before falling to a low of 144.346.

Machine Tool Orders and the Bank of Japan

On Monday, machine tool orders for December will garner investor interest. Improving demand for Japanese goods could support bets on a Bank of Japan pivot from negative rates. Recent economic indicators, including softer inflation and wage growth, eased bets on the BoJ exiting negative rates.

However, a pickup in economic activity could support wage growth and disposable income. Upward trends in disposable income could fuel household spending and demand-driven inflation. Wage growth and demand-driven inflation remain the focal points for the Bank of Japan.

Economists forecast machinery tool orders to fall by 9.0% in December year-over-year. Machinery tool orders were down 13.6% in November year-over-year.

After recent household spending, inflation, and wage growth numbers, investors must monitor BoJ commentary. References to exiting negative rates could impact buyer demand for the USD/JPY.

US Inflation and FOMC Member Views

On Monday, investors must track FOMC member commentary. Reactions to the recent US CPI Report and US producer prices could impact expectations about a March Fed rate cut. The inflation reports raised bets on a March rate cut. FOMC members supporting a higher-for-longer rate path could shift expectations to a May Fed rate cut.

According to the CME FedWatch Tool, the probability of a March rate cut increased from 64.0 to 76.9% last week.

There are no US economic indicators to influence USD/JPY trends on Monday. The US markets are closed for Martin Luther King Jr Day.

Short-term Forecast

Near-term trends for the USD/JPY hinge on US retail sales, Japan inflation, and central bank commentary. A pickup in US consumer spending could delay the timing of a Fed rate cut. Softer inflation numbers from Japan could allow the BoJ to keep rates in negative territory. Easing bets on a BoJ pivot from negative rates would support a USD/JPY return to 146.

USD/JPY Price Action

Daily Chart

The USD/JPY remained below the 50-day EMA while holding above the 200-day EMA, affirming bearish near-term but bullish longer-term price signals.

A USD/JPY breakout from the 50-day EMA would give the bulls a run at the 146.649 resistance level.

On Monday, the focus will be on machinery orders from Japan and central bank commentary.

However, a break below the 144.713 support level would support a fall to the 200-day EMA.

The 14-day RSI at 53.38 indicates a USD/JPY move to the 146.649 resistance level before entering overbought territory.

4-Hourly Chart

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

A USD/JPY move to the 146 handle would give the bulls a run at the 146.649 resistance level.

However, a break below the 200-day EMA and the 144.713 support level would support a fall through the 50-day EMA to sub-144.

The 14-period 4-hour RSI at 51.78 indicates a USD/JPY move to the 146.649 resistance level before entering overbought territory.