Japanese Yen Weekly Forecast: Will USD/JPY Break 145? GDP and Inflation Data in Focus
Original author: Bob Mason, via FX Empire
In the previous trading week, the Japanese yen faced strong downward pressure against the US dollar, with USD/JPY climbing toward the crucial 145 mark. As investors continue to react to differences in U.S. and Japanese monetary policies, the upcoming week will bring fresh catalysts that could determine whether the USD/JPY pair can break above this key technical and psychological resistance level. Notably, Japan’s GDP and inflation data will dominate the headlines and potentially influence the Bank of Japan’s (BoJ) policy trajectory.
Market Overview
USD/JPY gained notable ground last week, climbing from around 141 to just under 145 as a strong US dollar outweighed any bullish yen factors. A dovish Bank of Japan, stable U.S. yields, and expectations of persistent rate divergence have spurred traders to move towards the dollar as a safer and more profitable option.
As the correlation between the yen and global rate policies intensifies, next week’s macroeconomic calendar could provide fresh insights into Japanese economic health and inflation pressures.
Key Takeaways from the Previous Week
– USD/JPY posted significant gains and approached the significant 145 resistance level.
– The Japanese yen continued to weaken due to:
– Dovish rhetoric from BoJ policymakers.
– Limited intervention talk from the Japanese Ministry of Finance.
– A rebound in U.S. Treasury yields contributing to a stronger US dollar.
– Traders largely ignored weak U.S. economic data, favoring the dollar’s yield advantage.
– Investors are closely watching the 145 level, which previously prompted intervention warnings from Japanese authorities.
Upcoming Economic Catalysts
Looking ahead, the key economic data releases from both Japan and the United States will steer the next direction for the USD/JPY exchange rate. Here’s what markets are watching:
Japan GDP (Preliminary Estimate for Q2)
Scheduled for release early in the week, Japan’s Gross Domestic Product will offer insight into the current trajectory of the economy.
– Analysts expect modest growth, but any downside surprise may raise concerns about the sustainability of Japan’s post-COVID recovery.
– A weaker-than-expected GDP print could justify the Bank of Japan maintaining ultra-loose monetary policy, adding more weight against the yen.
– Conversely, a stronger-than-anticipated result might spur speculation about future adjustments to BoJ policy, particularly if coupled with higher inflation figures.
Japan CPI and Tokyo Core Inflation
Inflation remains the core talking point when discussing BoJ’s future actions. While Japan has seen relatively low inflation over past decades, recent data shows price pressures are returning despite tepid wage growth.
– The Consumer Price Index (CPI) is expected to continue showing signs of strengthening inflation.
– Tokyo Core CPI, viewed as a leading indicator for national trends, will also be scrutinized for above-target inflation.
– If inflation shows persistence or exceeds expectations, it could pressure the BoJ into tapering its yield curve control program, potentially lending support to the yen.
US Economic Calendar: FOMC Minutes and Inflation
While Japanese data is crucial, the USD side of the USD/JPY equation plays a vital role. In the U.S., investors will examine:
– FOMC Meeting Minutes: This may offer clues on how Fed policymakers are viewing inflationary trends and whether any hawkish dissent exists within the committee.
– US CPI and PPI Reports: Any upside surprise would likely reinforce Fed rate hike expectations, boosting Treasury yields and supporting the US dollar.
– If CPI remains sticky or increases, bond markets may price in another rate hike this year.
– Lower inflation readings could prompt expectations of a pause or even early rate cuts into 2024.
Technicals: USD/JPY Near Crucial Resistance
USD/JPY approached the key 145 resistance level last week, which has historically prompted either verbal or actual intervention from Japanese authorities.
– Traders recall last year
Explore this further here: USD/JPY trading.