A Precarious Week: Trade Developments, BoJ, and Carry Trade Risks
While Japan’s economic indicators will influence Japanese Yen demand and sentiment toward the BoJ’s rate path, trade developments may prove decisive.
Investors should consider several potential scenarios:
- An escalation in the global trade war would likely drive safe-haven demand, pressuring the USD/JPY, while positive negotiations could weaken Yen demand.
- Bank of Japan’s policy outlook will influence USD/JPY trends. Support for an H1 2025 rate hike would leave the USD/JPY pair on a downward trajectory. However, calls to delay further moves amid increasing economic uncertainty could drive USD/JPY higher.
- Risks of a Yen carry trade unwind heightened as the USD/JPY briefly dropped below 145.
Potential USD/JPY Moves
Key economic data from Japan and BoJ forward guidance will be crucial.
- Bullish Yen Scenario: Upbeat data, a hawkish BoJ stance, and an escalation in the global trade war could push USD/JPY toward 140. BoJ Governor Kazuo Ueda will speak on Wednesday, April 9.
- Bearish Yen Scenario: Weak Japanese data, a dovish BoJ, and a de-escalation in the global trade war may drive the pair past last week’s high of 150.485.
US Indicators in Focus
While the Japanese Yen will remain center stage, US indicators will also influence USD/JPY trends. Key reports include:
- FOMC Meeting Minutes (April 9).
- CPI Report (April 10).
- Initial Jobless Claims (April 10).
- Producer Prices (April 11).
- Michigan Consumer Sentiment (April 11).
Economists forecast the annual inflation rate to drop from 2.8% in February to 2.6% in March.
A hotter reading could validate Fed Chair Powell’s caution and delay Fed rate cuts, especially with tariffs adding to inflation. Conversely, softer inflation may bolster bets on a June Fed rate cut. US producer prices could also influence inflation trends and the timing of a Fed move.
Economists expect initial jobless claims to rise from 219k (week ending March 29) to 225k (week ending April 5).
A spike above 250k could trigger recession concerns, supporting a more dovish Fed rate path. Conversely, an unexpected fall in claims may lower bets on an H1 2025 Fed rate cut.
Consumer sentiment will also draw investor interest after March’s sharp drop in confidence. Economists forecast the Michigan Consumer Sentiment Index to fall from 57.0 in March to 54.5 in April.
Potential Price Scenarios:
- Bullish US Dollar Scenario: Strong inflation, lower claims, and improved consumer confidence could drive USD/JPY toward 150.
- Bearish US Dollar Scenario: Softer inflation, higher claims, and weaker consumer confidence may drag the USD/JPY toward 140.
Short-term Forecast:
USD/JPY trends this week will hinge on:
- Japan’s wage growth, consumer confidence, and producer price data.
- US inflation, labor market, consumer sentiment data.
- Central bank commentary.
- Global trade developments.
USD/JPY Price Action
Daily Chart
On the daily chart, the USD/JPY remains below the 50-day and the 200-day EMAs, affirming bearish price signals.
Despite last week’s pullback to 146.904, a breakout above 148 could support a move toward the 149.358 resistance level. A decisive move through 149.358 may enable the bulls to target the 50-day EMA.
Conversely, a drop below last week’s low of 144.546 would expose the October 2 low of 143.423, with 140.309 as the next key support level.
The 14-day Relative Strength Index (RSI) at 37.91 suggests a USD/JPY fall to 143 before entering oversold territory (RSI below 30).