USD/JPY Forecast: Strong March Spending Figures Stir Expectations for Yen’s Climb

Household Spending and the Bank of Japan Rate Path

On Friday (May 10), household spending numbers for March put the Bank of Japan and the USD/JPY under the spotlight.

Average household spending increased by 1.2% in March after advancing by 1.4% in February. Economists forecast household spending to fall by 0.3%.

Furthermore, household spending was down 1.2% in March year-on-year after falling 0.5% in February. Economists expected household spending to decline by 2.4% year-on-year.

The better-than-expected household spending figures could fuel investor expectations of a BoJ rate hike. Wage hikes in March may have contributed to the unexpected jump in household spending. Household spending could fuel demand-driven inflation and allow the BoJ to discuss interest rate hikes.

After the household spending figures, investors should monitor Bank of Japan commentary. Reaction to the numbers and views on inflation and the timing of a BoJ rate hike could influence buyer demand for the Yen.

US Economic Calendar: Michigan Consumer Sentiment and FOMC Member Speeches

Later in the Friday session, Michigan Consumer Sentiment numbers will warrant investor attention.

Economists expect the Michigan Consumer Sentiment Index to decline from 77.2 to 76.0 in May. Weaker-than-expected numbers could raise investor bets on a September Fed rate cut.

Falling consumer confidence could affect consumer spending. Downward trends in consumer spending may dampen demand-driven inflation and allow the Fed to cut interest rates.

Beyond the headline figure, investors should also consider the sub-components. Economists forecast the Michigan Inflation Expectations Index to fall from 3.2% to 3.1%. Additionally, economists expect the Michigan Consumer Expectations Index to increase from 76.0 to 77.3.

Following the recent US jobless claims figures, investors should monitor FOMC member chatter. FOMC members Michelle Bowman, Austan Goolsbee, and Michael Barr are on the calendar to speak. Views on the US economy, inflation, and the Fed rate path could move the dial.

Short-term Forecast

Near-term trends for the USD/JPY depend on Bank of Japan chatter, US consumer sentiment trends, and FMOC member chatter. The better-than-expected household spending numbers and waning US consumer confidence could tilt monetary policy divergence toward the Yen.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to the 156 handle could give the bulls a run at the 158 level. A breakout from 158 could support a move toward the April 29 high of 160.209.

Bank of Japan chatter, US consumer sentiment, and FOMC member speeches need consideration.

Alternatively, a USD/JPY fall through 155 could signal a drop to the 50-day EMA. A fall below the 50-day EMA could give the bears a run at the 151.685 support level.

The 14-day RSI at 55.93 suggests a USD/JPY return to the 160 handle before entering overbought territory.