• Next week’s US inflation report will shape the outlook for Fed rate cuts.

• Tokyo has spent approximately $60 billion to try and support its weak currency.

• BoJ policymakers were increasingly hawkish at the April meeting.

The USD/JPY forecast leans bullish as the dollar strengthens ahead of next week’s US inflation data. Markets believe the economy is still robust, which could mean another upbeat inflation report. Meanwhile, hawkish sentiments from BoJ policymakers at their last meeting helped briefly support the yen.

Market participants are getting ready for the US inflation report, which will shape the outlook for Fed rate cuts. The last report led to a significant rally in the dollar that weighed on the yen and had Japanese authorities concerned. Another report could return the pair to the $160.00 level and trigger another intervention. In the last week, Tokyo has spent approximately $60 billion to try and support its weak currency.

If inflation remains persistent, there is a high chance that investors will push back the timing for the first Fed rate cut. On the other hand, a surprise decline would be a big relief for the Fed, especially after the recent jobs report. It would solidify bets that the central bank will cut interest rates in September.

Elsewhere, minutes from the Bank of Japan’s last meeting in April revealed that policymakers were increasingly hawkish. As a result, experts believe the next rate hike could come in June or July. Although this strengthened the yen, it was only brief as it quickly resumed its decline against the dollar.

USD/JPY key events today

• US unemployment claims
• US 30-y Bond auction

USD/JPY technical forecast: Channel breakout confirms bullish reversal

On the technical side, the USD/JPY price has broken out of its bearish channel and is quickly approaching the 156.00 key resistance level. The breakout shows that bulls have taken control. At the same time, the price trades above the 30-SMA with the RSI above 50, supporting the new bullish bias.

Bulls gained confidence when the price broke above the channel resistance. However, after such a strong rally, the price might pause at the 156.00 key resistance. This would allow it to pull back and retest the 30-SMA as support before continuing higher. Given the new bullish bias, the price might break above the 156.00 level to retest the 158.00 key resistance level.

https://www.forexcrunch.com/blog/2024/05/09/usd-jpy-forecast-dollar-firms-as-investors-prepare-for-us-cpi/