USDJPY Forecast: Bracing for US CPI Volatility

Fed Powell’s Testimony and Monetary Policy Anticipations
Japan’s Inflationary Pressures and Monetary Policy Expectations
USDJPY Technical Analysis

Japan’s Economic Indicators:

The Japanese Yen's sustained decline, coupled with rising energy prices, has led to increased import costs and accelerated wholesale inflation. The corporate goods price index rose at the fastest year-on-year pace since August 2023, reaching a seven-month high of 122.7. The latest Bank of Japan (BOJ) core CPI and Producer Price Index (PPI) both increased by 0.3%, lifting market expectations for a potential rate hike in the upcoming policy meeting. BOJ Governor Kazuo Ueda stated that they would raise interest rates if yen movements significantly impact inflation.

US Monetary Policy Updates:

Fed Chair Jerome Powell’s testimony on the semi-annual monetary policy report indicated considerable progress towards controlling inflation, with the latest figures aligning with a disinflationary trend. Powell hinted that delaying rate cuts could pose risks to overall economic activity. Although no specific rate cut date was mentioned, the Fed is waiting for more favorable data to confidently move in that direction.

The next significant data point is the US CPI figures due on Thursday, which are hoped to show further declines. The upcoming policy decision is confirmed to not likely involve a rate increase, but the timing for loosening monetary policy is still under consideration, depending on updated economic figures.

USDJPY Forecast: USDJPY - 3 Day Time Frame – Logarithmic Scale

Source: Tradingview

The USDJPY is currently within an uptrend but is trading in an indecisive range ahead of the US inflation data. Respecting the boundaries of an up-trending parallel channel since December 2023, the current range lies in the mid-channel area, presenting two potential breakout scenarios given the anticipated market volatility.

Bullish Scenario: An increase in US inflation figures, along with a breakout above the 162.20 high, could pave the way for the continuation of the uptrend towards the upper end of the channel, potentially reaching levels of 163.30, 165, and 166.30.

Bearish Scenario: A decrease in inflation figures could add bearish pressure on the US Dollar, and a break below 160 for the USDJPY could lead to a retest of the 159.30 and 158 levels.

With the pace of the Fed’s monetary policy decisions outpacing that of the BOJ, the greater effect on the USDJPY chart this week is expected to come from developments in US economic activity metrics and monetary policy expectations.

--- Written by Razan Hilal, CMT

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.