USD/JPY Weekly Forecast: Japan Wage Negotiations and US Inflation in Focus

Weekly Overview of the USD/JPY in the Week Ending March 8, 2024

The USD/JPY slid by 2.00% in the week ending March 8, closing the week at 147.053. In the previous week, the USD/JPY declined by 0.28%. The USD/JPY rose to a Monday high of 150.567 before falling to a Friday low of 146.478.

USD/JPY Analysis: GDP, Producer Prices, and the BoJ in Focus

On Monday, finalized GDP numbers for Q4 will garner investor interest. Upward revisions to preliminary numbers could raise bets on an April Bank of Japan pivot from negative rates. Investors must consider the sub-components, including contributions from private consumption.

According to preliminary numbers, the Japanese economy contracted by 0.1% quarter-on-quarter after contracting by 0.8% in Q3.

Producer prices also need consideration on Tuesday. Producer prices are a leading indicator of consumer price inflation. Producers pass price hikes onto consumers in a higher-demand environment. A larger-than-expected rise in producer prices may raise bets on an April BoJ pivot.

Economists forecast producer prices to increase by 0.5% year-on-year in February, up from 0.2% in January.

On Friday, the Tertiary Industry Index will be in focus. Economists expect the Index to increase by 0.2% in January after rising by 0.7% in December. However, the numbers will unlikely influence BoJ plans to exit negative rates. Wages, the services sector, household spending, and demand-driven inflation are focal points for the BoJ.

Beyond the numbers, investors must monitor Bank of Japan commentary. Views on wage negotiations, inflation, and timelines to exit negative rates would move the dial.

US Economic Calendar: US Inflation, Retail Sales, and Consume Confidence in Focus

On Tuesday, the all-important US CPI Report warrants investor attention. Softer-than-expected inflation numbers could refuel bets on a May Fed rate cut. Economists forecast the US core annual inflation rate to soften from 3.9% to 3.7% in February and the inflation rate to remain at 3.1%

US retail sales and producer prices will draw investor interest on Thursday. A larger-than-expected rise in retail sales could test bets on an H1 2024 Fed rate cut. Upward consumer spending trends fuel demand-driven inflation and may force the Fed to delay rate cuts. A higher-for-longer rate path could impact disposable income and curb consumer spending.

Economists forecast retail sales to increase by 0.7% in February after falling by 0.8% in January.

However, producer price trends may influence bets on an H1 2024 Fed rate cut. Producers increase prices in a tighter demand environment, passing prices onto consumers. Economists expect producer prices to increase by 1.2% year-on-year in February compared with 0.9% in January.

On Friday, the focus will shift to US consumer confidence. A downward trend in consumer confidence may signal a pullback in consumer spending, dampening demand-driven inflation. A softer inflation outlook could allow the Fed to cut interest rates for price stability.

Economists forecast the Michigan Consumer Sentiment Index to fall from 76.9 to 76.6 in March. However, investors must consider the sub-components, including consumer and inflation expectations.

There are no FOMC member speeches to consider. The Fed entered the blackout period on March 9.

Short-term Forecast

Near-term USD/JPY trends will hinge on wage negotiations in Japan. However, inflation numbers from Japan and the US could also impact the timelines for central bank policy moves. Favorable updates on wage negotiations could tilt monetary policy divergence toward the Yen. While the Fed considers interest rate cuts, the BoJ plans to exit negative rates.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to the 148 handle would support a break above the 148.405 resistance level and 50-day EMA. However, selling pressure could intensify at the 148.405 resistance level. The 50-day EMA is confluent with the resistance level.

GDP, inflation, wage negotiations from Japan and US inflation, retail sales, and consumer confidence need consideration.

However, a break below the 146.649 support level would give the bears a run at the 200-day EMA. A fall through the 200-day EMA would bring the 144.713 support level into play.

The 14-day RSI at 63.73 indicates a USD/JPY break above the 148.405 resistance level and the 50-day EMA before entering overbought territory.

4-Hourly Chart

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

A USD/JPY breakout from the 147.500 handle would bring the 148.405 resistance level into play. A move through the 148.405 resistance level would give the bulls a run at the 200-day and 50-day EMAs.

However, a break below the 146.649 support level may signal a fall toward the 144.713 support level.

The 14-period 4-hour RSI at 18.31 shows the USD/JPY in oversold territory. Buying pressure could intensify at the 146.649 support level.