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

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


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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