USD/JPY Forecast: Renewed Inflation Worries Propel the Dollar

• Investors have increased Fed rate hike bets on inflation worries.

• OPEC+ announced more production cuts.

• Factory activity in Japan shrank at its slowest rate in five months in March.

Today’s USD/JPY forecast is bullish. The US dollar started the week higher as traders bet the Federal Reserve might need to increase interest rates at its upcoming meeting. This comes as inflation concerns returned after a surprise announcement by major oil producers to reduce production further.

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The OPEC+ announcement comes after data on Friday showed that US consumer spending increased moderately in February after surging the previous month. Inflation showed some signs of cooling even though it remained high.

Fresh inflation threats suggest that the battle against inflation is not over.

Due to an increase in inventories, factory activity in Japan shrank at its slowest rate in five months in March. However, the still-weak global and domestic demand circumstances meant that the post-COVID economic recovery would take some time to take root.

Japan’s Manufacturing Purchasing Managers’ Index, published on Monday, increased from February’s 47.7 to 49.2 in March. It was the smallest decline since November 2022. Additionally, it exceeded the flash measurement of 48.6.

Japan’s economy has finally begun to recoup from the COVID-caused downturn, but a global slowdown and rising food costs threaten a full-blown rebound in growth. Additionally, relatively high inflation continues to be a concern for families.

Even though the growth rate was the slowest since August 2021, factors like a surge in raw material prices and a weaker yen added to elevated input price inflation. 

USD/JPY key events today

Investors will pay attention to the US ISM manufacturing purchasing managers index report. This report will show the level of business activity in the manufacturing sector.

USD/JPY technical forecast: Bulls find footing above the 132.55 key level

The 4-hour chart shows USD/JPY pushing off the 132.55 support level. The price is trading above the 30-SMA, and the RSI is above 50, heading for the overbought region. This indicates bullish strength in the current move.

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After bulls broke above the 132.55 level, there was a pause, with the price consolidating above this level. The bulls need to break out of this consolidation to move higher. From the 132.55 level, the price will look to hit the next resistance at 135.00.

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