USD/JPY Forecast: Yen at Risk as BoJ, US Economic Data Take Center Stage

The Japanese Government and the Bank of Japan

On Wednesday (May 15), Bank of Japan views on monetary policy and Japanese government talk about interventions may impact buyer demand for the USD/JPY.

The USD/JPY advanced for the sixth time in seven sessions on Tuesday (May 14), raising the risk of a government intervention. A weaker Japanese Yen could raise import costs and impact household spending. Downward trends in household spending would affect the Japanese economy. Private consumption contributes over 50% to the Japanese economy.

While the Japanese government will monitor Yen price movements, investors should consider Bank of Japan commentary. On Tuesday, Finance Minister Shunichi Suzuki reportedly said the government will work closely with the BoJ. Bank of Japan comments on raising interest rates would influence buyer appetite for the Japanese Yen.

There are no stats from Japan for investors to consider before GDP numbers on Thursday (May 16).

US Economic Calendar: US CPI Report, Retail Sales, and the Fed

Later in the Wednesday session, US inflation and retail sales figures will put the Fed under the spotlight.

Following the upward trend in US producer prices, a hotter-than-expected US CPI Report could refuel speculation about a Fed rate hike.

Economists forecast the US annual inflation rate to fall from 3.5% to 3.4% in April. Furthermore, economists expect the core inflation rate to ease from 3.8% to 3.6%.

A more hawkish interest rate trajectory would raise borrowing costs and reduce disposable income. Downward trends in disposable income could affect consumer spending and dampen demand-driven inflation.

However, retail sales figures could also influence the Fed rate path. Weaker-than-expected retail sales figures could signal a softer inflation outlook and reduce the chances of a Fed rate hike. Economists forecast retail sales to increase by 0.4% in April after rising by 0.7% in March.

With inflation and retail sales in focus, FOMC member commentary also needs consideration. FOMC members Neel Kashkari and Michelle Bowman are on the calendar to speak. Reactions to the US data and views on the Fed rate path warrant investor attention.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on the US CPI Report and FOMC member commentary. A hotter-than-expected US CPI Report could reduce investor bets on a September Fed rate cut and tilt monetary policy divergence toward the US dollar. However, US retail sales figures and intervention chatter to bolster the Yen will also influence the USD/JPY pair.

USD/JPY Price Action

Daily Chart

The USD/JPY remained well above the 50-day and 200-day EMAs, confirming the bullish price trends.

A breakout from the 156.5 handle could signal a USD/JPY move toward the 158 level. A USD/JPY return to 158 could give the bulls a run at the April 29 high of 160.209.

On Wednesday, the BoJ, the Japanese government, US economic indicators, and the Fed need consideration.

Alternatively, a USD/JPY drop below 155.5 would bring the 50-day EMA into play. A break below the 50-day EMA could give the bears a run at the 151.685 support level.

The 14-day RSI at 60.65 indicates a USD/JPY move to the 160 handle before entering overbought territory.