- USD/JPY forecast is bullish after Powell spoke cautiously.
- Analysts expect further easing in price pressures from 3.4% to 3.1% in June.
- Japan’s wholesale inflation increased in June.
The USD/JPY forecast is bullish as the dollar firms ahead of US inflation figures. Meanwhile, the yen remained frail despite data showing a surge in Japan’s wholesale inflation in June.
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On Tuesday and Wednesday, Powell spoke cautiously, saying the Fed needed more evidence that inflation would fall to the 2% target. As a result, the dollar got a boost, which weighed on the yen. At the same time, the likelihood of a rate cut in September slipped from 76% to 73%.
As long as the Fed keeps delaying rate cuts, the 5% rate gap between Japan and the US will remain. Therefore, the yen will likely continue dropping. However, the upcoming US inflation report could change this outlook. Analysts expect further easing in price pressures from 3.4% to 3.1% in June. This would bring consumer inflation closer to the Fed’s 2% target. Consequently, it would give policymakers more confidence to cut rates. Moreover, softer inflation would pressure the dollar, relieving the yen.
The yen can only strengthen when the rate gap between Japan and the US shrinks. This can only happen with BoJ hikes and Fed rate cuts. However, both central banks have been delaying these moves. The Bank of Japan is trying to support a vulnerable economy that could worsen with higher borrowing costs. On the other hand, the Fed is waiting for more evidence that inflation will reach 2%.
Elsewhere, Japan’s wholesale inflation increased in June as a weak yen raised import costs, including raw materials. This raised the likelihood of a BoJ hike in July.
USD/JPY key events today
- US Core CPI m/m
- US CPI m/m
- US CPI y/y
- US unemployment claims
USD/JPY technical forecast: Bears fail to keep the price below the 30-SMA
On the technical side, the USD/JPY price is in a bullish move, approaching the 162.01 critical level. Initially, bears had taken control when the price broke below the 30-SMA after a bearish RSI divergence. However, the move failed to continue below the 160.50 support level.
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As a result, bulls took back control. However, they must make a higher high to confirm a continuation of the previous bullish trend. Otherwise, the price might start consolidating with support at 160.50 and resistance at 162.01.
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Saqib Iqbal
