USD/JPY Forecast: Japanese Yen Drops to 149.500: A Closer Look at USD/JPY Price Action

Highlights

• The USD/JPY tumbled 0.81% on Friday, ending the session at 149.500.
• Upbeat US housing sector failed to counter bets on a May Fed rate cut.
• On Monday, Bank of Japan and Fed speeches will be focal points.

USD/JPY Movements on Friday

The USD/JPY tumbled 0.81% on Friday. Following a 0.39% decline on Thursday, the USD/JPY ended the session at 149.500. The USD/JPY rose to a high of 150.774 before falling to a low of 149.193.

Bank of Japan, Negative Rates, and Monetary Policy Divergence

It’s important to closely monitor Bank of Japan commentary throughout Monday’s session. The markets are betting on a Q1 2024 exit from negative interest rates. However, economic indicators from Japan continue to fuel concerns about the macroeconomic outlook.

Weak demand and demand-driven inflationary pressures have forced the BoJ to change guidance. BoJ Governor Kazuo Ueda recently said the BoJ can exit negative rates without rising wage growth. The weak Yen continues to fuel an elevated inflation environment, pressuring the BoJ to make a move.

Bank of Japan forward guidance on monetary policy goals would move the dial. More decisive statements about exiting negative rates would support the slow move toward 145.

Fed Speakers to Test Bets on a May Fed Rate Cut

On Monday, Fed speakers could influence market bets on a May Fed rate cut. US inflation and retail sales figures have driven bets on a May Fed rate cut. Fed speeches have yet to confirm expectations of the Fed ending its rate hike cycle and considering a rate cut in H1 2024.

There are no US economic indicators to influence sentiment toward Fed monetary policy. The lack of stats will leave the US dollar in the hands of Fed chatter.

Hawkish comments would surprise investors. While inflationary pressures have softened, labor market conditions remain tight. Tight labor market conditions support wage growth and disposable income. Uptrends in disposable income fuel consumer spending and demand-driven inflationary pressures, forcing the Fed into a hawkish Fed rate path.

Short-term Forecast

BoJ and Fed speakers will influence near-term USD/JPY trends before the Fed minutes. Recent US economic indicators and BoJ commentary tilted monetary policy divergence toward the Yen. On Friday, inflation numbers from Japan could be a tipping point.

USD/JPY Price Action

Daily Chart

The USD/JPY held above the 50-day and 200-day EMAs, sending bullish price signals. A USD/JPY return to 150 would support a move to the 150.201 resistance level.

Bank of Japan and Fed speeches would be the focal points.

A break below the 50-day EMA would give the bears a run at the 148.405 support level.

The 14-day RSI at 46.09 suggests a USD/JPY fall to the 148.205 support level before entering oversold territory.

4-Hourly Chart

The USD/JPY remains below the 50-day and 200-day EMAs, sending bearish near-term price signals.

A USD/JPY fall to 149.000 would support a drop to the 148.405 support level.

However, a break above the 200-day EMA would give the bulls a run at the 150.201 resistance level.

The 14-period 4-hour RSI at 29.95 shows the USD/JPY in oversold territory. Buyer appetite could intensify at 149.500.