The Japanese Yen has appreciated against every single G10 currency since the start of May, with the USDJPY dropping over 1% month-to-date.

But before we take a deep dive into what forces may boost or weaken the yen, let’s have a glance at the list of key economic reports and events that could influence currency markets next week:

Monday, May 15

• EUR: Eurozone industrial production
• JPY: Japan April PPI
• USD: Empire Manufacturing, Atlanta Fed President Raphael Bostic speech
• GBP: Bank of England chief economist Huw Pill speech

Tuesday, May 16

• CAD: Canada April CPI
• CNY: China retail sales, industrial production
• EUR: Eurozone Q1 GDP, Germany ZEW survey expectations
• GBP: UK jobless claims, unemployment
• USD: US April retail sales, industrial production, Fed speech

Wednesday, May 17

• EUR: Eurozone April CPI
• JPY: Japan Q1 GDP, Industrial production
• GBP: BoE Governor Andrew Bailey speech

Thursday, May 18  

• AUD: Unemployment change
• USD: Initial jobless claims, existing home sales

Friday, May 19  

• CAD: Canada March retail sales
• JPY: Japan April CPI
• EUR: ECB President Christine Lagarde speech
• USD: New York Fed President John Williams speech
• G7 leaders meet in Hiroshima

Now, here are 3 reasons why we’re keeping a close eye on the USDJPY:

1. Top tier Japan data

The new Bank of Japan (BoJ) Governor Kazuo Ueda recently mentioned that the BoJ would start unwinding its monetary easing once the 2% inflation target can be achieved in a sustainable and stable manner.

This could add more flavour to the incoming data, with any whiff or hint of a potential policy pivot in the future rocking FX markets. It may be wise to keep a close eye on:

• Japan Q1 2023 GDP report due on Wednesday, 17th May.

Markets are forecasting GDP to expand 0.8% quarter on quarter in annualized terms, up from a 0.1% expansion in the final quarter of 2022. A report that meets or exceeds expectations could boost confidence in Japan’s economic recovery, providing an argument for the BoJ to evaluate and potentially tweak its current stimulus policy. However, a disappointing GDP print could provide more evidence that the current recovery remains weak, keeping BoJ doves in power.

• Japan April CPI report due on Friday, May 19th

The annual inflation is expected to expand to 3.5% in April from the 3.2% witnessed in the previous month. Regarding the core CPI excluding fresh food, this is expected to jump 3.4% year-on-year, up from the 3.1% rise in March.  Looking at the core CPI excluding both fresh food and energy, markets are forecasting this to rise 4.2%, a noticeable rise from the 3.8% in the prior month.

Ultimately, more signs of rising inflationary pressures could fuel speculation around the BoJ unwinding its ultra-loose monetary policy. Traders are currently pricing in a 72% probability of a 10-basis point hike by the December BoJ meeting, it will be interesting to see how the incoming data influences expectations.

2. More clues about the Fed’s next move

Investors will be keeping an eye on fresh clues on the Fed’s next move, especially after the annual increase in US inflation slowed to below 5% in April for the first time in two years.

• Fed speeches

A chorus of Fed speakers will be under the spotlight ranging from Rachael Bostic, to Loretta Mester and John Williams among others. With annual US inflation cooling, it will be interesting to hear what policymakers have to say. Any dovish remarks and more hints of the Fed pausing hikes could weaken the dollar, dragging the USDJPY lower.

• US data cocktail

Much attention will be directed towards the latest US retail sales, industrial production and US weekly initial jobless claims, especially after the Fed stressed that incoming data would influence monetary policy decisions. A disappointing set of reports may further dampen confidence over the US economy and support expectations around the Fed cutting rates down the road. If the figures print above market forecasts, it may rekindle speculation around the Fed keeping rates higher for longer.

3. Major USDJPY breakout on the horizon

The USDJPY remains trapped within a 200-pip range on the daily charts.

Although prices seem to be respecting a bullish channel, a fresh fundamental spark is needed before the trend resumes or reverses. A strong breakout and daily close above 135.50 could open a path toward major resistance around the 137.80/138.00 regions. Should prices slip below the 133.50 support, the USDJPY could tumble towards 132.90 and 131.20, respectively.

At the time of writing Bloomberg’s FX model forecasts a 73% chance that USDJPY will trade within the 132.84 – 136.40 range over the upcoming week.

Zooming out to the monthly timeframe, strong resistance can be found at 138.00 and support at 130.00. A move back below 133.50 could signal a decline toward 130.00 and 127.20, respectively. Should 138.00 prove to be unreliable resistance, this could signal an incline back toward 149.00 in the medium to longer term.