The inflation figures released on Friday will play a vital role in influencing the Bank of Japan’s rate path. It is anticipated that service sector-driven inflationary pressures could potentially prompt discussions about the timing of an interest rate hike. Economists predict that the annual inflation rate will hold steady at 2.8% in March, while core inflation is expected to ease slightly from 2.8% to 2.7%.
On Monday, investors will closely watch the NY Empire State Manufacturing Index and retail sales figures. Of particular interest is the impact of US retail sales figures on the USD/JPY. Upsurges in consumer spending could lead to demand-driven inflation and postpone the likelihood of a Fed rate cut, ultimately reducing disposable income. Economists are forecasting a 0.3% increase in retail sales for March following a 0.6% rise in February.
On Tuesday, the housing sector will take center stage as it is perceived as a leading indicator of the US economy. Any deterioration in housing market conditions could potentially affect consumer confidence and spending habits. This could also ease inflationary pressures in housing services, which are of significant concern to the Fed. Forecasts suggest that building permits may decline by 0.7% in March after a 2.4% rise in January, while housing starts are expected to drop by 0.8% subsequent to a 10.4% fall in February.
Attention will shift to initial jobless claims and the Philly Fed Manufacturing Index on Thursday. An increase in jobless claims could reignite speculations about a Fed rate cut in June. Weaker labor market conditions may impact wage growth, thereby affecting disposable income levels. Economists are projecting a slight rise in initial jobless claims from 211k to 212k for the week ending April 13. However, trends in the Philly Fed Manufacturing Index must also be monitored, as they could provide insights into the state of the US economy and the likelihood of a recession.
In addition to economic data, it is essential for investors to keep an eye on speeches delivered by FOMC members. Fed Chair Powell is scheduled to speak on Tuesday, followed by speeches from other members such as Austan Goolsbee (Fri), Loretta Mester (Wed), Mary Daly (Mon), Michelle Bowman (Wed), and Raphael Bostic (Thurs). The messaging from these speeches could offer valuable guidance on future monetary policy decisions.
The near-term trends of USD/JPY are likely to be influenced by developments in the Middle East as well as central bank commentary. Any potential flight to safety could impact buyer demand for the USD/JPY, with investors showing a preference for the Japanese yen over the US dollar. The current positioning of USD/JPY well above the 50-day and 200-day EMAs suggests bullish signals. A breakout from the April 12 high of 153.384 might propel the pair towards the 154 handle. However, a breach below the 152.500 mark could bring the 50-day EMA into play, opening the door for a decline towards the 148.529 support level. The 14-day RSI reading at 72.50 indicates that the USD/JPY is in overbought territory, possibly leading to increased selling pressure if the pair reaches 153.384.
The USD/JPY trends are influenced by a multitude of factors, ranging from economic data releases to geopolitical events and central bank statements. Traders and investors need to carefully analyze these elements to make informed decisions about their positions in the currency pair.