USD/JPY Forecast: Japan’s Producer Prices and the US CPI Report in the Spotlight

Highlights

• The USD/JPY rallied 0.81% on Monday, ending the session at 146.145.
• On Tuesday, producer price figures from Japan will draw investor interest early in the session.
• The US CPI Report will be the key driver for the Tuesday session.

USD/JPY Movements on Monday

The USD/JPY rallied 0.81% on Monday. Following a 0.61% gain on Friday, the USD/JPY ended the day at 146.145. The USD/JPY fell to a low of 144.811 before rising to a Monday session high of 146.589.

Japanese Producer Prices and the Bank of Japan in Focus

On Tuesday, producer prices from Japan will draw investor interest. The Yen could show more sensitivity to the numbers as the Bank of Japan eyes an exit strategy from negative rates.

Economists forecast producer prices to increase by 0.1% year-over-year in November. In October, producer prices rose by 0.8%. Softer producer prices could signal a weak demand environment. Weaker demand forces producers to cut prices to win new business. Softer producer price pressures could result in weaker consumer prices.

Significantly, softer producer prices could allow the Bank of Japan to delay a pivot from negative rates. A weaker economic backdrop has raised uncertainty about a BoJ move away from ultra-loose policy.

US CPI Report in the Spotlight

On Tuesday, the US CPI Report will be the focal point. Sticky inflation could force the Fed to maintain interest rates at the current level. A hawkish Fed rate path keeps borrowing costs elevated, reducing disposable income. Downward trends in disposable income affect consumer spending, dampening demand-driven inflationary pressures.

Significantly, the CPI Report comes before Wednesday’s FOMC interest rate decision, projections, and press conference. The inflation numbers could impact the projections and Fed Chair Powell’s view on rate cut discussions.

Economists forecast the US annual inflation rate to soften from 3.2% to 3.1% in November. However, economists expect core inflation to hold at 4.0%.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on the CPI Report and the Fed. A weaker macroeconomic backdrop increases uncertainty regarding a BoJ pivot away from negative rates. Sticky US inflation could force the Fed to maintain a hawkish rate path, tilting policy divergence toward the US dollar.

USD/JPY Price Action

Daily Chart

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

A USD/JPY break above the 146.649 resistance level would bring the trend line into play.

Producer price numbers from Japan and the US CPI Report are focal points on Tuesday.

However, a fall through the 146 handle would support a drop to the 144.713 support level.

The 14-day RSI at 41.20 indicates a USD/JPY drop to the 144.713 support level before entering oversold territory.

4-Hourly Chart

The USD/JPY remained below the 50-day and 200-day EMAs, reaffirming bearish price signals.

A USD/JPY break above the 50-day EMA and the 146.640 resistance level would support a move to the trend line.

However, a fall below the 146 handle would give the bears a run at the 144.713 support level.

The 14-period 4-hour RSI at 53.48 suggests a USD/JPY break above the trend line before entering overbought territory.