Japanese Yen Weekly Forecast: BoJ Rate Hike Bets, Inflation, and the Fed in Focus

USD/JPY Resumes Losing Streak as BoJ Rate Hike Bets Rise

Here’s what traders need to know as the USD/JPY pair tumbled by 2.01% in the week ending February 21, closing at 149.226.

The pair briefly climbed to a high of 152.383 before sliding to a low of 148.919, reflecting a narrowing in the US-Japan interest differential, favoring the Japanese Yen.

Key Economic Indicators Boost BoJ Rate Hike Expectations

Japan’s GDP and private consumption data signaled resilient demand and a pickup in economic activity in Q4. Inflation figures added to hawkish expectations, with the core inflation rate rising from 3% in December to 3.2% in January, well above the Bank’s 2% target.

This week, traders should closely monitor Japan’s retail sales and Tokyo’s inflation data for further insights into the BoJ’s rate path.

USD/JPY sensitivity to these reports could rise, especially after recent comments from Bank of Japan Governor Kazuo Ueda and Deputy Governor Himono, who hinted at more rate hikes if economic conditions align with the Bank’s projections.

Japan’s Leading Economic Index in Focus

On Wednesday, February 26, Japan’s Conference Board Leading Economic Index will require consideration. According to the preliminary report, the Index climbed to 108.9 in December, up from 107.8 in November.

Revisions to the preliminary numbers could influence sentiment on BoJ policy. The Index, which tracks consumer and business sentiment, typically signals trends in business investment, job creation, and wages.

An upward revision could reinforce rate hike expectations, while a downward revision may weaken market confidence in an H1 2025 BoJ move.

Tokyo Inflation and National Retail Sales Crucial for the BoJ

On Friday, February 28, Japan’s retail sales and Tokyo’s inflation data will be crucial for the Bank of Japan’s policy outlook.

Economists forecast retail sales to rise 4.1% year-on-year in January, up from 3.7% in December. A sharp pickup in consumer spending could fuel demand-driven inflation, strengthening the case for a BoJ rate hike. Conversely, weaker-than-expected sales may suggest a weaker inflation outlook, possibly delaying BoJ action.

Tokyo’s core inflation rate, expected to dip from 2.5% in January to 2.4% in February, will be closely monitored. A sharper decline could ease BoJ rate hike expectations and weigh on the Yen. However, higher core inflation may reinforce bets on a BoJ move in H1 2025.

Potential USD/JPY Moves

Japan’s key economic indicators and shifting bets on a BoJ rate hike will continue to influence USD/JPY trends.

• Bullish Yen Case: Rising retail sales and higher core inflation could support a more hawkish BoJ rate path, potentially dragging the USD/JPY pair below 148.
• Bullish USD Case: Softer inflation and weak retail sales may lower bets on a BoJ rate hike, pushing the pair toward 152 and the 200-day EMA.

Expert Views on the Bank of Japan’s Rate Outlook

Research platform East Asia Econ commented on Japan’s inflation and private sector PMI data:

“Japan – inflation pain. The fundamental inflation story of labour market tightness and wage hikes was seen in today’s firm services PMI. But both the PMI and CPI today suggest that dynamic has again been overtaken by prices driven by supply shortages, a phenomenon that is clearly bad for real incomes and so consumption.”

The Bank of Japan will need sustained wage growth to boost consumption and the economy. However, rising prices, driven by supply constraints, may counter the effect of wage growth. A stronger Yen, supported by tighter monetary policy, could help stabilize purchasing power and bolster the economy.

US Economic Calendar and Fed Outlook

Meanwhile, it could be a pivotal week for the Fed and the US dollar. Key reports include:

• Consumer confidence (February 25).
• Jobless claims and GDP data (February 26).
• US Personal Income and Outlays Report (February 28).

A pickup in consumer confidence and a drop in jobless claims could fuel consumer spending and demand-driven inflation. Conversely, weaker consumer confidence and rising jobless claims may revive bets on an H1 2025 Fed rate cut, pressuring the US dollar.

Friday’s Core PCE Price Index, forecast to drop from 2.8% in December to 2.7% in January, will be a key indicator. A softer reading could boost bets on an H1 2025 Fed rate cut, while an unexpected spike may reinforce a higher-for-longer Fed rate path.

Beyond the economic data, traders should monitor the FOMC members’ commentary for further policy clues and tariff developments. Sweeping tariffs could raise import prices and inflationary pressures, complicating Fed policy.

For USD/JPY trends, a more hawkish Fed could push the pair toward 153, while a dovish stance may drive it below 148.

Short-term Forecast:

USD/JPY trends hinge on:

• Tokyo inflation data, Japan’s retail sales, and the BoJ’s forward guidance.
• US consumer confidence, jobless claims, and inflation are crucial for the Fed and the US dollar.
• Geopolitical risks, including US tariff developments.

While rising bets on a BoJ rate hike could weigh on the USD/JPY pair, a more hawkish Fed rate path would likely have more impact on the US-Japan interest rate differential and USD/JPY trends.

USD/JPY Price Action

Daily Chart

After last week’s tumble, the USD/JPY sits below the 50-day and the 200-day EMAs, sending bearish price signals.

A USD/JPY break above the 149.358 resistance level and 150 could signal a move toward the 200-day EMA and 153. If the USD/JPY revisits the 153 level, the bulls may target the 50-day EMA next.

Conversely, a USD/JPY break below the 149 would bring sub-148 into sight. The 14-day Relative Strength Index (RSI) at 32.12 indicates a USD/JPY fall to 148 before entering oversold territory (RSI below 30).

Final Thoughts

The coming week could bring heightened volatility as markets assess Fed rate cuts and BoJ policy shifts:

• BoJ forward guidance will be crucial as investors digest the upcoming economic data from Japan.
• Fed speakers will also influence the USD/JPY trajectory, with hawkish tones likely to bolster US dollar demand.

Traders should monitor real-time data, central bank guidance, and technical trends for price action insights. For deeper insights, check out our in-depth technical analysis here.