USD/JPY Forecast: Yen Buyers Alert as BoJ Mulls Rate Pivot

USD/JPY Movement on Friday

The USD/JPY advanced by 0.47% on Friday. Following a 0.37% gain on Thursday, the USD/JPY ended the session at 148.994. The USD/JPY fell to a low of 148.031 before rising to a Friday session high of 149.163.

Machinery Orders and the Bank of Japan in the Spotlight

On Monday, machinery order numbers for January drew investor interest as the BoJ monetary policy meeting commenced.

Machinery orders declined by 1.7% month-on-month in January after increasing by 2.7% in December. Economists forecast machinery orders to fall by 1.0%.

Year-on-year, machinery orders decreased by 10.9% in January. Machinery orders were down 0.7% year-on-year in December. Economists expected machinery orders to fall by 11.2%.

The January numbers highlighted the demand environment in January. However, the fall in orders may not influence the BoJ monetary policy decision.

On Monday, the Bank of Japan begins the two-day monetary policy meeting. The markets are betting on the BoJ exiting negative rates on Tuesday. On Friday, Rengo, the Japanese Trade Union Confederation (JTUC), announced wage hikes averaging 5.28%, the most marked increase in 33 years.

The markets consider the outcome of wage negotiations a green light for a BoJ pivot from negative rates. Nonetheless, weak economic indicators for Q1 2024 could create uncertainty about the BoJ monetary policy decision. The Japanese economy avoided a technical recession in Q4 2023, expanding by 0.1%.

US Economic Calendar: NAHB Housing Market Index

On Monday, the US housing sector will be in focus. Economists consider housing sector data a litmus test of the US economy.

Housing market conditions influence consumer confidence and consumer spending. Weaker conditions could reduce consumer spending and dampen demand-driven inflationary pressures. Moreover, private consumption contributes over 70% to the US economy. A weaker spending outlook could refuel fears of a hard landing.

Economists forecast the NAHB Housing Market Index to remain at 48 in March. In trend terms, the Index increased for three consecutive months, rising from 34 (Nov) to 48 (Feb).

Short-term Forecast

Near-term trends for the USD/JPY will hinge on the Bank of Japan and Fed monetary policy decisions. A BoJ pivot from negative rates and forward guidance on rate hikes for 2024 could materially impact the USD/JPY. However, recent US inflation numbers will give the FOMC Economic Projections and press conference weightage.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to the 150 handle would support a move toward the 151.685 resistance level.

Economic indicators from Japan and the US and speculation on a BoJ pivot will influence price action.

Conversely, a USD/JPY break below the 148.529 support level and the 50-day EMA would give the bears a run at the 147.500 handle.

The 14-day RSI at 51.42 indicates a USD/JPY move to the 151 handle before entering overbought territory.