Week Ahead: USDJPY set to extend uptrend?

• Yen down against G10 majors YTD

• Watch out for BoJ policy meeting

• Big US data likely to rock USD

• USDJPY bullish but RSI signals overbought

• Key level of interest at 148.50

Monetary policy will take centre stage in the week ahead as major central banks kick off their first meetings of 2024.

Also watch out for top-tier economic data and corporate earnings announcements from the largest companies in the world:

Monday, 22nd January

• CNH: China loan prime rates
• USD: US Conference Board leading index

Tuesday, 23rd January

• EUR: Eurozone consumer confidence
• JPY: BoJ rate decision
• NQ100_m: Netflix earnings

Wednesday, 24th January

• CAD: BoC rate decision
• EUR: Eurozone/Germany S&P Global PMI
• GBP: UK S&P Global/CIPS Manufacturing PMI
• USD: S&P Global Services & Manufacturing PMI
• S&P500_m: Tesla earnings

Thursday, 25th January

• EUR: ECB rate decision, Germany IFO business climate
• USD: Q4 GDP, initial jobless claims

Friday, 26th January

• JPY: Japan Tokyo CPI, BoJ meeting minutes
• USD: US December PCE report

Our focus falls on the Japanese Yen which has been on a back foot since December as bets fizzed out around a hawkish pivot by the Bank of Japan (BoJ) from negative rates. This supported the USDJPY with the upside fuelled by stronger than expected US data which dampened expectations around the Fed cutting rates in March.

The widening interest rate differentials between the US and Japan over the recent weeks has propelled the USDJPY. Prices are testing resistance around 148.50 as of writing.

Here are 3 factors that may move the USDJPY next week.

1. BOJ policy meeting

The BoJ is widely expected to keep its yield-curve control and short-term interest rates unchanged at -0.1%.

Slowing inflation coupled with the devastating earthquake Japan experienced in early January have most likely reduced pressure on the BoJ to raise interest rates anytime soon. Nevertheless, much attention will be directed to the policy statement and updated quarterly outlook for fresh clues on rate hike timings.

As of writing, traders are currently pricing in an 83% probability of the BoJ hiking rates by June 2024.

Looking beyond the rate decision, the incoming Japan Tokyo CPI report on Friday may impact the Yen and rate hike expectations.

• The Yen may extend losses if the BoJ maintains a dovish stance and offers zero clues on future rate hikes.
• Any clues offered on future hikes in the policy statement or updated quarterly outlook could support the Yen.

2. Big US data

A week packed with top-tier US data is likely to shape expectations around the Fed’s next move.

The potential market shakers will be the final quarter GDP figures and December PCE report. Markets expect the US economy to have expanded 1.9% in Q4, down from the 4.9% in the prior quarter. Regarding the Fed’s preferred inflation gauge – the Core Personal Consumption Expenditure, it is forecast to rise 0.2% month-over-month compared to 0.1% in November. However, the year-over-year is expected to cool 3% vs 3.2% in the prior month.

• Should overall US economic data disappoint, and inflation numbers print below forecasts, this may weaken the dollar – pulling the USDJPY lower as a result.
• A set of strong economic reports and hotter-than-expected PCE report have the potential to boost the USD – pushing the USDJPY higher.

3. Technical forces

The USDJPY is respecting an ascending channel on the daily timeframe with prices trading above the 50, 100 and 200-day SMA. However, the Relative Strength Index (RSI) is approaching 70, indicating that prices are overbought. In addition, key resistance levels can be found at 148.50 and the psychological 150.00 level.

• A strong breakout and daily close above 148.50 may open the doors towards 150.00 – a level not seen since mid-November 2023 and beyond.
• Should prices fail to conquer 148.50, this could trigger a decline back towards the 50-day SMA at 146.15 and 200-day SMA at 143.90.