USD/JPY Forecast: Rising Producer Prices Hint at BoJ Policy Shift

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USD/JPY Movement on Monday

The USD/JPY slipped by 0.08% on Monday. After a 0.67% loss on Friday, the USD/JPY ended the session at 146.937. The USD/JPY rose to a high of 147.147 before falling to a Monday session low of 146.484.

US Producer Prices Support Bets on a Bank of Japan Pivot

On Tuesday, producer price figures from Japan drew investor interest. Producer prices increased by 0.6% year-on-year in February. Economists forecast producer prices to increase by 0.5% year-on-year in February. In January, producer prices were up 0.2% year-on-year.

Recent inflation numbers from Japan have fueled bets on a Bank of Japan pivot from negative rates. The hotter-than-expected producer prices could raise bets on the BoJ exiting negative rates in March. Producer prices are a leading indicator of consumer price inflation. Producers raise prices in a higher-demand environment, passing costs onto consumers.

While the numbers need consideration, wage negotiations remain the focal point. A marked hike in wages could cement a March BoJ pivot from negative rates. The first reports on wage negotiations are out on March 15, before the BoJ monetary policy meetings from March 18-19.

With the producer prices in focus, BoJ commentary also needs consideration. Views on the timeline for a pivot from negative rates would move the dial.

US Economic Calendar: The US Jobs Report

On Tuesday, US inflation figures for February will garner investor interest. Economists forecast the core annual inflation rate to fall from 3.9% to 3.7%. Moreover, economists expect the annual inflation rate to remain unchanged at 3.1%.

Hotter-than-expected numbers could force the Fed to delay rate cuts until H2 2024. A higher-for-longer Fed rate path could reduce disposable income, curbing consumer spending. Downward trends in consumer spending may dampen demand-driven inflation.

On Friday, the US Jobs Report raised uncertainty about the outlook for private consumption. Wage growth softened and unemployment rose in February. However, a larger-than-expected rise in nonfarm payrolls surprised the markets and signaled a positive consumption outlook.

Short-term Forecast

Near-term trends for the USD/JPY remain hinged on US inflation numbers and wage negotiations. Softer US inflation and a hike in Japanese wages may tilt monetary policy divergence toward the Yen. The BoJ is considering an exit from negative rates, while the Fed targets rate cuts.

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 return to the 147.500 handle would support a USD/JPY move to the 50-day EMA and the 148.405 resistance level. Selling pressure may intensify at the 148.405 resistance level. The 50-day EMA is confluent with the resistance level.

Producer prices, wage negotiations, BoJ chatter, and the US CPI Report need consideration.

However, a drop below the 146.649 support level would bring the 200-day EMA into play.

The 14-day RSI at 33.12 indicates a USD/JPY fall below the 146.649 support level before entering oversold territory.

USDJPY 120324 Daily Chart

4-Hourly Chart

The USD/JPY remained below the 50-day and 200-day EMAs, affirming the bearish near-term price signals.

A USD/JPY break above the 147.500 handle could bring the 148.405 resistance level into play.

However, a fall through the 146.649 support level would give the bulls a run at the 144.713 support level.

The 14-period 4-hour RSI at 24.27 shows the USD/JPY in oversold territory. Buying pressure could intensify at the 146.649 support level.

USDJPY 120324 4 Hourly Chart

This article was originally posted on FX Empire

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