USD/JPY Weekly Forecast: Key Economic Indicators to Watch – Yen and Price Trends

Weekly Overview of the USD/JPY in the Week Ending June 7, 2024

The USD/JPY declined by 0.34% in the week ending June 7, closing the week at 156.695. On Monday, the USD/JPY climbed to a high of 157.472 before falling to a low of 154.524 on Tuesday.

Japan Economic Calendar: GDP and Producer Prices

On Monday (June 10), finalized GDP numbers will impact buyer demand for the USD/JPY pair.

According to the preliminary figures, the Japanese economy contracted by 0.5% in Q1 2024 after stalling in Q4 2023.

Downward revisions to private consumption and headline GDP numbers could influence investor bets on a 2024 Bank of Japan rate hike. A deteriorating macroeconomic environment traditionally tempers investor expectations of an interest rate hike. However, the BoJ is conscious of the effects of a weaker Japanese Yen on inflation and the broader economy.

A BoJ rate hike could strengthen the Yen, reduce import costs, and support private consumption. Wage growth trends could more than compensate for the effects of a BoJ interest rate hike on disposable income.

Machine tool orders from Japan also need consideration on Tuesday (June 11). Economists forecast machine tool orders to decline 6.5% year-on-year in May after falling 11.6% in April.

Better-than-expected numbers could signal an improving demand environment midway through Q2 2024. Nevertheless, the stats are unlikely to influence the BoJ rate path. The BoJ focuses on wage growth, household spending, the services sector, and demand-driven inflation.

On Wednesday (June 12), producer price figures could attract the attention of the BoJ. Economists forecast producer prices to increase 2% year-on-year in May after a rise of 0.9% in April. Producers increase prices in a rising demand environment, passing price increases onto consumers. A marked increase in producer prices could signal a pickup in demand-driven inflationary pressures.

The Bank of Japan Interest Rate Decision and Press Conference

While the numbers will influence buyer demand for the Japanese Yen, the Bank of Japan interest rate decision is the main event.

The markets expect the Bank of Japan to leave interest rates unchanged on Friday (June 14). Barring a surprise BoJ interest rate hike, the focus will be on the monetary policy statement and press conference.

Forward guidance on inflation, the economic outlook, and the timing of an interest rate hike needs consideration. Furthermore, Bank of Japan Governor Kazuo Ueda may discuss BoJ policy options to strengthen the Yen.

US CPI Report, the Fed, and Consumer Sentiment

On Wednesday, the US CPI Report will warrant investor attention. Economists forecast the US annual inflation rate to remain at 3.4% in May. Additionally, economists expect the core inflation rate to soften from 3.6% to 3.5%.

Higher-than-expected inflation figures could sink investor bets on a September Fed rate hike. Following the recent US Jobs Report, the US CPI Report could materially influence the Fed rate path.

A higher-for-longer Fed rate path could raise borrowing costs and reduce disposable income. Downward trends in disposable income could affect consumer spending and dampen demand-driven inflation.

While the US CPI Report will move the dial, the FOMC interest rate decision, economic projections, and press conference are the main events.

The markets expect the Fed to leave interest rates unchanged on Wednesday. The economic projections will reveal adjustments to the Fed rate path since the March meeting. Fed Chair Powell could also impact buyer demand for the US dollar during the press conference.

Producer prices and initial jobless claims will need consideration on Thursday. Economists forecast producer prices to increase by 0.2% in May after rising by 0.5% in April. Furthermore, economists expect initial jobless claims to fall from 229k to 227k in the week ending June 8.

The influence of the numbers on the USD/JPY will depend on the Fed press conference and the near-term focal points for the Fed.

An unexpected rise in jobless claims and a smaller-than-expected increase in producer prices may support expectations of a September Fed rate cut.

On Friday, preliminary Michigan Consumer Sentiment figures will attract investor attention.

Economists forecast the Michigan Consumer Sentiment Index to jump from 69.1 to 73.0 in June.

Upward trends in consumer sentiment could signal a pickup in consumer spending. Consumer spending may fuel demand-driven inflation and affect market expectations of a Fed rate cut.

However, investors must consider the sub-components, including the Michigan Inflation Expectations Index.

Beyond the numbers, investors should monitor FOMC member speeches. FOMC members John Williams (Thurs) and Austan Goolsbee (Fri) are on the calendar to speak.

Short-term Forecast

Near-term USD/JPY trends will hinge on the FOMC and BoJ interest rate decisions, the FOMC economy projections, and the press conferences. A more dovish FOMC outlook on interest rates and a hawkish BoJ could bring sub-150 into play.

USD/JPY Price Action

Daily Chart

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

A USD/JPY return to the 158 handle could give bulls a run at 160. A breakout from the 160 handle would bring the April 29 high of 160.209 into play.

Investors should consider the US CPI Report, the FOMC economic projections, and the BoJ/Fed press conferences.

Conversely, a USD/JPY break below the 50-day EMA could signal a drop toward the 151.685 support level.

The 14-day RSI at 54.62 indicates a USD/JPY return to the April 29 high of 160.209 before entering overbought territory.