USD/JPY Forecast: All Eyes on Inflation Reports from US, Japan

• The yen might record its first month of gains in 2024 due to suspected intervention.

• The core PCE price index will play a significant role in shaping the Fed’s policy outlook.

• Japan will release the Tokyo CPI report.

The USD/JPY forecast remains bullish as investors eagerly await key inflation data from the US and Japan. However, despite the recent decline, the yen might record its first month of gains in 2024 due to suspected intervention by the Bank of Japan.

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The new week comes with inflation figures from the US showing underlying price increases. The core PCE price index will play a significant role in shaping the outlook for interest rate cuts in the US. The Fed prefers this measure of inflation as it eliminates all volatile measures and focuses on those that can cause persistence. Therefore, if this figure shows a cooling economy, there will be an increase in rate-cut expectations. On the other hand, hotter-than-expected numbers would likely prolong high interest rates in the US.

Meanwhile, Japan will release the Tokyo CPI report, a leading indicator of national inflation trends. The Bank of Japan hopes for higher inflation in the country, allowing it to hike interest rates. However, recent figures have shown a decline, challenging this outlook.

The yen found some strength on Friday after Japan’s top currency diplomat, Masato Kanda, issued another warning against speculative yen declines. He said Japan was ready to act anytime, raising fears of a possible intervention. Already, there have been two suspected interventions that have strengthened the yen. However, since then, it has given up some of its gains.  

USD/JPY key events today

There are no major reports from the US and Japan today, and trading might be thin due to the holiday in the US.

USD/JPY technical forecast: Bullish momentum remains weak above 156.50

On the technical side, the USD/JPY price has pulled back to trade near solid support, comprising the 30-SMA and the 156.50 key level. However, the bias is bullish since it has made a higher high. The price recently broke above 156.60 but has since traded in a tight range, showing weaker bullish momentum. 

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If bulls remain weak, a break below the 30-SMA might shift sentiment. Nevertheless, the bullish bias will remain with the price above the support trendline. If bulls regain strength, the price will retest the 158.01 resistance level.

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