The Bank of Japan (BoJ) announced today that consumer inflation is likely to rise in the future, pushing the need for tighter monetary policies in the coming months in the USD (United States Dollar) and JPY (Japanese Yen).
In current estimates, the BoJ lowers its core inflation forecast to 2.4% from 2.8%, but states:
“Consumer inflation is likely to gradually rise towards the BOJ’s target as the output gap turns positive and medium- to long-term inflation and wage growth expectations rise. The likelihood of this outlook materializing continues to gradually increase, despite the large uncertainties that remain about future developments.”
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The latest BoJ interest rate forecasts show that there is a roughly equal chance (50/50) that they will rise at the central bank's meeting on April 26.
While the Bank of Japan has provided some support to the Japanese Yen, the medium-term outlook for the USD/JPY pair will be influenced by the US Dollar and future data and events. This Friday, the recent Core PCE report will drive price action during the FOMC meeting. While the Fed is expected to keep rates unchanged, Chairman Jerome Powell’s comments after the meeting should be closely watched. Markets will be looking to Chairman Powell for any indication of when the central bank is expected to start cutting rates, and any comments on this will impact the US Dollar.
USD/JPY has been trading lower since the all-time high of 148.80 last Friday and has tested 147.00 so far today. However, it is still being argued that a break below 146.00 would pave the way for 145.00 or lower. If we factor in the strength of the yen and the weakness of the US dollar, it is likely to end up at 140.00. The upside remains uncertain and will require either higher than expected inflation in the United States or a different Fed chair.
Retail trader data reveals that 26.13% of traders are in the buyers category. The number of buyers is up 7.17% compared to yesterday and down 15.88% compared to last week, while the number of buyers in net-short positions is up 2.86% compared to yesterday and down 14.98% compared to last week.
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We usually have opposing views to what the crowd believes, and the fact that traders are net-short suggests that USD/JPY prices may continue to rise.
