Weekly Forecast for the Japanese Yen: Yen Under Pressure Ahead of Japan’s GDP and US CPI Reports

Japanese Yen and Aussie Dollar News: BoJ vs. Fed Rate Path Battle Heats Up

Japan’s GDP: Will the Economy Contract?

As investors set their sights on the upcoming GDP report, the outcomes have the potential to shift market dynamics significantly. On May 16, Japan is poised to release its Q1 2025 GDP data, which analysts anticipate to show a contraction of 0.1% quarter-on-quarter, following a growth of 0.6% in Q4 2024.

A contraction of this magnitude could halt expectations for a Bank of Japan (BoJ) rate hike in 2025, potentially dampening interest in the Yen. Conversely, should the economy outperform expectations and show unexpected growth, this might open the door to an interest rate increase, creating a favorable environment for Yen appreciation.

It’s vital to keep an eye on private consumption, projected to rise by 0.3% after stagnating in the previous quarter, as it will be a critical indicator of economic health.

USD/JPY Outlook: Tariffs, Trade, and Consumption Trends

The USD/JPY pair is navigating a pivotal week ahead. With global focus shifting from tariffs to trade deals, upcoming trade development news will be crucial for gauging risk sentiment and influencing Yen valuation.

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Key Scenarios to Consider

  • Bullish Yen Scenario: Strong economic data, a hawkish tone from the BoJ, or escalating trade tensions might push USD/JPY closer to 140.
  • Risk of Yen Carry Trade Unwind: If USD/JPY dips below the September 2024 low of 139.576, we could see a significant unwind in Yen carry trades.
  • Bearish Yen Scenario: Weak performance data, dovish signals from the BoJ, or easing trade tensions may send the pair soaring toward 150.

US Data Driving Fed Policy and Dollar Demand

While Japan’s economic health will be under scrutiny, the focus will also be on U.S. data influencing Federal Reserve policy and subsequent dollar demand. Key releases this week include:

  • CPI Report (May 13)
  • Retail Sales (May 15)
  • Initial Jobless Claims (May 15)
  • Producer Prices (May 15)
  • Michigan Consumer Sentiment (May 16)

Analysts anticipate the annual inflation rate to tick up from 2.4% in March to 2.6% in April. Should inflation rise, market participants may reconsider expectations for a Fed rate cut in June, thereby strengthening the U.S. dollar. In contrast, a weak figure could breathe life back into rate cut speculation, putting downward pressure on the dollar.

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Further, producer prices are expected to rise 0.2% month-on-month in April after a 0.4% decline in March, indicating a market adjustment to demand fluctuations. Retail sales data will also be crucial, projecting a 0.8% drop in April after an impressive 1.4% increase the previous month. A sharper decline could reignite recession fears and lead to a softer inflation outlook.

The Michigan Consumer Sentiment Index, estimated to fall from 52.2 in April to 52.0 in May, could significantly influence consumer spending trends. A drop in confidence may dampen spending, while an unexpected rebound could signal economic resilience.

Price Scenarios to Monitor

  • Bullish U.S. Dollar Scenario: Positive economic indicators and a hawkish Fed outlook could propel USD/JPY toward 150.
  • Bearish U.S. Dollar Scenario: Dovish Fed policy or weaker-than-expected data may shift USD/JPY downward, targeting 140.

Short-Term Forecast

In the short term, the trajectory for USD/JPY will heavily depend on trade sentiments, forward guidance from central banks, and pivotal macroeconomic data.

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USD/JPY Price Action Insights

Examining the daily chart reveals that USD/JPY is currently trading below both the 50-day and 200-day EMAs, maintaining a bearish posture.

A rise above the 50-day EMA could set the stage for a test of the resistance level near the April 9 high of 148.280, and sustained buying pressure may target resistance at 149.358. Conversely, should the pair drop below 142.5, we might see it challenge 140 and the prior low of 139.576 from September 2024.

The 14-day Relative Strength Index (RSI) registers at 52.58, indicating potential for further gains, with overbought conditions emerging above an RSI of 70.

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