Title: USD/JPY Weekly Forecast: Bearish Outlook as Key Japanese Economic Data Looms
Original article by James Hyerczyk – FX Empire (https://www.fxempire.com/forecasts/article/japanese-yen-weekly-forecast-usd-jpy-outlook-bearish-as-tokyo-inflation-retail-sales-loom-1543537)
Overview
The USD/JPY pair concluded the previous week on a relatively weak note as traders turned their attention to upcoming key economic indicators from Japan. With Tokyo inflation data and national retail sales figures on the horizon, the Japanese yen could experience a shift in market sentiment, particularly if the data supports expectations of a policy shift from the Bank of Japan (BoJ). Meanwhile, the US dollar faced some headwinds amid a shifting interest-rate forecast landscape and uncertainties surrounding future Federal Reserve moves.
Despite recent gains in the USD/JPY pair due to contrasting monetary policy stances between the BoJ and the Federal Reserve, the momentum has slowed. The yen briefly strengthened last week, fueled by speculation that the BoJ may tighten policy sooner than previously anticipated. Overall, the coming week may see further downward pressure on USD/JPY if Japan’s economic indicators surprise to the upside.
Fundamental Analysis
Bank of Japan Policy Outlook
One of the central themes influencing the USD/JPY pair is the divergence in monetary policies between the US and Japan. While the Federal Reserve remains committed—albeit cautiously—to high interest rates to manage inflation, the BoJ remains firmly dovish.
However, recent comments and shifts in market expectation suggest that the BoJ may be entering a transitional phase. There is growing speculation that the BoJ could consider quantitative tightening or even rate hikes if inflation sustains its upward trend or if consumption rebounds significantly.
Upcoming Tokyo Consumer Price Index (CPI) figures will serve as early indicators for national price trends, making them essential for assessing the BoJ’s possible policy direction.
Key data to watch:
– Tokyo Core CPI: A leading measure of nationwide inflation
– Expectations are for the reading to remain above the BoJ’s 2% target
– Consistent high readings could pressure BoJ to act sooner
– Monetary tightening could result in a stronger yen and, consequently, a bearish move in USD/JPY
Retail Sales Data
Retail sales from Japan will offer further insight into consumer behavior and economic momentum. This data will be instrumental in assessing whether the Japanese economy is strong enough to endure tighter monetary policy.
– Strong retail figures may suggest rebounding domestic demand
– Weak numbers would reinforce the BoJ’s dovish stance
– Any upside surprise would apply downward pressure on USD/JPY through yen appreciation
US Dollar and the Federal Reserve
The US dollar experienced slight softness last week as markets recalibrated their expectations for the Federal Reserve’s interest-rate trajectory. Policymakers struck a more careful tone, and recent data highlighted a modest reduction in inflationary pressures, though not enough to prompt immediate rate cuts.
– A cautious Fed could mean smaller rate differentials between the US and Japan
– Reduced monetary policy divergence may lead to USD/JPY weakness
– Market focus remains on incoming US inflation figures and employment data
Technical Analysis
Price Summary
The USD/JPY pair closed the week at approximately 156.87, showing signs of topping out after reaching a 34-year high above 160 earlier in May. Despite the strength seen earlier in the month, the pair reversed slightly and settled into a consolidative short-term range.
Daily and weekly charts suggest exhaustion by the bulls, indicating potential for a pullback, especially if bearish catalysts emerge from Japanese economic releases.
Support and Resistance Levels
Near-term support and resistance levels to watch include:
– Immediate Resistance: 157.70-158.00 zone
– Major Resistance: 160.00 (psychological and intervention-sensitive level)
– Support Level 1: 155.50 (tested multiple times recently)
– Support Level 2: 153.
Explore this further here: USD/JPY trading.