Title: Japanese Yen Weekly Forecast: Will USD/JPY Break 145? Key Focus on GDP and Inflation
By James Hyerczyk – Original article on FXEmpire
This upcoming trading week will center around the Japanese yen (JPY), as investors closely monitor whether the USD/JPY currency pair will sustain its upward momentum and potentially breach the 145 psychological resistance level. Several macroeconomic catalysts are expected to influence the yen’s movements, particularly Japan’s Gross Domestic Product (GDP) data and key inflation figures. The interplay between U.S. monetary policy updates and Japan’s domestic economic indicators will be critical in determining the trajectory of the currency pair.
Market sentiment surrounding USD/JPY has been buoyant due to the widening monetary policy divergence between the Federal Reserve and the Bank of Japan (BoJ). While the Fed continues to maintain its hawkish tone, the BoJ remains firmly dovish, unwilling to deviate from its ultra-loose monetary policies. As a result, traders anticipate continued upward momentum for the USD/JPY, especially if U.S. yields rise further or if Japan’s economic data fails to suggest a change in policy from the BoJ.
Key Drivers for the Week:
1. Japan’s Preliminary GDP Report:
Japan is set to release preliminary GDP data for Q2 on Monday. The report is anticipated to show a strong rebound in growth after a tepid performance in Q1. Analysts forecast annualized GDP growth between 3.1% and 4.0%, driven by recovery in exports, robust consumer spending, and the lifting of pandemic-related restrictions.
Key expectations:
– Positive contribution from business investments.
– Increased household consumption as post-pandemic normalcy boosts spending.
– Utility of pent-up demand to stimulate domestic growth.
However, the GDP data’s impact on the yen will largely depend on whether it alters the BoJ’s stance. Unless the data is significantly above forecasts, the BoJ is unlikely to shift away from its ultra-loose monetary policy. Therefore, even encouraging Q2 growth might have a muted reaction in strengthening the yen.
2. Inflation Data in Focus:
Investors will be scrutinizing Japan’s national Consumer Price Index (CPI) for July, scheduled for release on Friday. This data will provide insight into inflationary pressures in the Japanese economy and whether they are persistent enough to prompt monetary tightening.
Key CPI expectations:
– The National Core CPI (excluding fresh food) is projected to rise around 3.0% year-over-year.
– Any upside surprise could reignite speculation about policy normalization.
– However, the BoJ has repeatedly communicated its willingness to maintain loose policy until inflation proves sustainable at or above target levels.
The BoJ’s stance remains that current inflation is largely cost-push driven, not demand-pull. Therefore, even if inflation readings come in hot, the central bank is likely to remain on hold, which may weaken the yen further.
3. U.S. Economic Indicators:
Outside Japan, developments in the U.S. economy will also weigh heavily on the USD/JPY pair. For this week, the U.S. will publish:
– Retail sales (Tuesday): A strong reading would suggest robust consumer spending and could support further Fed hikes.
– FOMC meeting minutes (Wednesday): Markets will comb through the minutes from the July meeting to identify any clues about the Fed’s policy outlook. If the tone remains hawkish, Treasury yields could rise further, strengthening the U.S. dollar.
– Weekly jobless claims and housing data (Thursday): These will provide additional context regarding the state of the U.S. economy.
Recent comments from Federal Reserve officials have reinforced a higher-for-longer interest rate strategy as they aim to curb inflation. Bond markets have responded accordingly, with U.S. Treasury yields moving upward, continuing to drive USD/JPY higher.
4. Technical Analysis of USD/JPY:
The USD/JPY ended last week posting gains, closing near the psychologically significant 145 level. The pair currently resides in a bullish
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