USD/JPY Weekly Forecast: Hotter Inflation Fades Rate Cut Odds

• US consumer and producer price data revealed a spike in inflation.

• There was optimism that major companies in Japan would increase wages.

• Investors will pay attention to policy decisions in the US and Japan.

The USD/JPY weekly forecast shows upside potential as expectations of a June Fed rate cut dwindle amid signs of high inflation.

Ups and downs of USD/JPY

USD/JPY had a bullish week as the dollar strengthened and the yen weakened. The dollar strengthened as consumer and producer price data revealed a spike in inflation. As a result, the chances of a Fed rate cut in June fell. If the Fed holds higher interest rates for longer, the dollar will keep rising, weighing on the yen.

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Meanwhile, the yen lost some strength when the BoJ governor Kazuo Ueda gave a weak assessment of the economy. However, there was optimism that major companies in Japan would increase wages. A wage hike will allow the Bank of Japan to start hiking interest rates.

Next week’s key events for USD/JPY

Next week, investors will pay attention to policy decisions in the US and Japan. Recently, there has been a lot of speculation on a possible policy shift in Japan. Markets expect the Bank of Japan to start hiking interest rates. Moreover, there is a chance the central bank will pivot at next week’s meeting as companies in Japan are ready to give their workers big pay increases. Increased pay means better consumer spending, paving the way for higher borrowing costs.

On the other hand, the Fed will likely hold rates next week. Additionally, investors will pay attention to economic projections and the press conference for more clues on rate cuts.

USD/JPY technical weekly forecast: New bearish momentum pauses at 146.51

On the technical side, USD/JPY is climbing after finding support at the 146.51 key level. However, the bias is still bearish because the price trades below the 22-SMA. On the other hand, the RSI seems ready to trade in bullish territory above 50. Still, bulls will only take over when the price breaks above the 22-SMA and the 150.75 key resistance level. If this happens, the price will likely retest the 152.02 key resistance level.

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However, if the trend has reversed to the downside, the price will respect the 22-SMA and bounce lower. Still, bears must make a lower low below 146.51 to further confirm the new bearish trend.

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