USD/JPY Forecast: Tokyo and US Inflation Put the BoJ and Fed in Focus

Highlights

• The USD/JPY gained 0.11% on Thursday, ending the session at 147.656.
• US GDP and jobless claims raised expectations of a soft landing, contributing to the session gains.
• On Friday, Tokyo inflation, the Bank of Japan, US personal income/spending, and US inflation need consideration.

USD/JPY Movement on Thursday

The USD/JPY gained 0.11% on Thursday. Partially reversing a 0.54% loss from Wednesday, the USD/JPY ended the day at 147.656. On Thursday, the USD/JPY rose to a high of 147.933 before falling to a low of 147.080.

Tokyo Inflation and the Bank of Japan in Focus

On Friday, inflation numbers for Tokyo will garner investor interest. Softer-than-expected inflation numbers could delay the timing of a Bank of Japan pivot from negative rates.

Economists forecast the annual inflation rate to ease from 2.4% to 2.2% in January. Significantly, economists predict the core inflation rate to soften from 2.1% to 1.9%, below the BoJ target of 2%.

Softer inflation figures could force the BoJ to wait for wage growth to fuel household spending and demand-driven inflation. A pickup in demand-driven inflation would allow the BoJ to exit negative rates to deliver price stability.

Beyond the numbers, investors must consider BoJ comments about the recent Services PMI and the inflation numbers.

US Economic Calendar: US Inflation and Personal Income/Spending in Focus

Later in the session, US personal income/spending and inflation warrant investor attention. Sticky inflation and upward personal income/spending trends could reduce bets on a March Fed rate hike.

Upward personal income and spending trends could fuel consumer spending and demand-driven inflation. A higher-for-longer Fed rate path could curb spending and dampen demand-driven inflation.

Economists forecast personal income and spending to increase by 0.3% and 0.4%, respectively. Significantly, economists expect the Core PCE Price Index to increase by 3.0% year-over-year after rising by 3.2% in November.

Other stats include pending home sales figures for December. However, these will likely play second fiddle to the US inflation and personal income/spending numbers.

Short-term Forecast

Near-term trends for the USD/JPY hinge on inflation numbers from Japan and the US. Sticky US inflation could tilt monetary policy toward the US dollar. However, the USD/JPY remains at risk of a sharp correction if US inflation softens significantly.

USD/JPY Price Action

Daily Chart

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

A USD/JPY break above the 148.405 resistance level would support a move toward the 150.201 resistance level.

On Friday, Tokyo inflation, the Bank of Japan, US personal income/spending, and US inflation need consideration.

However, a fall through the 147 handle would bring the 146.649 support level into play. A break below the 146.649 support level would give the bears a run at the 50-day EMA.

The 14-day RSI at 60.74 suggests a USD/JPY return to the 149 handle before entering overbought territory.

4-Hourly Chart

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

A USD/JPY breakout from the 148.405 resistance level would give the bulls a run at the 150.201 resistance level.

However, a break below the 50-day EMA would support a fall toward the 146.649 support level.

The 14-period 4-hour RSI at 49.08 suggests a USD/JPY fall through the 146.649 support level before entering oversold territory.