USD/JPY Forecast: Producer Prices from Japan v the US CPI Report

Highlights

• The USD/JPY gained by 0.07% on Monday, ending the session at 149.336.
• On Tuesday, producer price numbers from Japan could influence bets on a Bank of Japan pivot from negative rates.
• Later in the session, the US CPI report will likely impact market bets on an H1 2024 Fed rate cut.

USD/JPY Movement on Monday

The USD/JPY gained 0.07% on Monday. Reversing a 0.04% loss from Friday, the USD/JPY ended the day at 149.336. The USD/JPY fell to a low of 148.926 before rising to a Monday high of 149.478.

Producer Prices and the Bank of Japan

On Tuesday, producer prices from Japan drew investor interest. Producer prices rose by 0.2% year-over-year in January. Economists forecast producer prices to increase by 0.1% year-over-year in January. Producer prices remained unchanged year-over-year in December.

A pickup in producer prices could signal an improving demand environment. Producers increase prices in a less competitive environment and pass costs onto consumers. A Bank of Japan pivot from negative rates could impact borrowing costs and reduce disposable income. A downward trend in disposable income could curb consumer spending and dampen demand-driven inflation.

While the numbers will influence, Bank of Japan forward guidance on the timeliness of a pivot remains pivotal. Recent reports about wages support bets on the Bank of Japan exiting negative rates in April.

US CPI Report in Focus

On Tuesday, the US CPI Report will be in focus. Economists forecast the US annual inflation rate to soften from 3.4% to 3.0% in January. Importantly, economists expect core inflation to ease from 3.9% to 3.8%.

Sticky inflation may force the Fed to keep interest rates higher for longer to tame inflation. A higher-for-longer Fed rate path could affect borrowing costs and reduce disposable income. Downward trends in disposable income could force consumers to curb spending, dampening demand-driven inflation.

Beyond the numbers, investors must consider FOMC member commentary. Reactions to the CPI Report would move the dial.

Short-term Forecast

Near-term trends for the USD/JPY hinge on the US CPI Report. Softer-than-expected US inflation could raise bets on a May Fed rate cut. Bank of Japan signals of an April pivot from negative rates could also tilt monetary policy divergence toward the Yen.

USD/JPY Price Action

Daily Chart

The USD/JPY remained above the 50-day and 200-day EMAs, affirming bullish price signals.

A USD/JPY return to the 150 handle would give the bulls a run at the 150.201 resistance level. A breakout from the 150.201 resistance level would bring the 151.889 resistance level into play.

On Tuesday, central bank commentary and the US CPI Report need consideration.

However, a break below the 148.405 support level would bring the 50-day EMA and the 146.649 support level into play.

The 14-day RSI at 63.55 suggests a USD/JPY move to the 150.201 resistance level before entering overbought territory.

4-Hourly Chart

The USD/JPY held above the 50-day and 200-day EMAs, reaffirming the bullish price signals.

A USD/JPY break above the 150.201 resistance level would support a move toward the 151.889 resistance level.

However, a drop below the 149 handle would bring the 50-day EMA and the 148.405 support level into play.

The 14-period 4-hour RSI at 65.11 suggests a USD/JPY move to the 150.201 resistance level before entering overbought territory.