Japanese Yen Weekly Forecast: Sub-140? Tariffs, Inflation, and Central Banks in Focus

USD/JPY Ends Winning Streak as US-EU Tensions Flare

An escalation in trade tensions drove demand for safe-haven assets, including the Yen, pushing USD/JPY below 143. On Friday, President Trump threatened a 50% tariff on EU goods, souring risk sentiment. The US dollar also came under selling pressure after Moody’s downgraded the US sovereign rating from Aaa to Aa1, raising concerns about fiscal stability.

Ending a four-week winning streak, USD/JPY tumbled 2.11% to close at $142.551 after hitting a weekly high of 145.507 and a low of 142.419.

Outlook: Trade Talks, BoJ Signals, and Data in Focus

Trade developments remain a key driver for USD/JPY as round four of US-Japan trade talks loom. However, traders should also track BoJ commentary and incoming macroeconomic indicators for further price guidance.

Leading Economic Indicator May Shift BoJ Expectations

On Monday, May 26, Japan’s Leading Economic Index (LEI) will give insights into business and consumer sentiment. According to preliminary data, the LEI fell to 107.7 in March, down from 108.2 in February.

A sharper-than-expected decline could temper expectations of a Q3 2025 BoJ rate hike, potentially weighing on the Yen.

Weakening sentiment may weigh on the labor market, wages, and consumer spending. Given private consumption accounts for over 60% of Japan’s GDP, a pullback in spending may raise recessionary fears and dampen inflation. Conversely, a higher reading might revive rate hike speculation and strengthen the Yen.

Consumer Confidence to Influence Policy Outlook

On Thursday, May 29, consumer confidence figures will offer further clues on consumption trends. Economists forecast the Consumer Confidence Index to rise from 31.2 in April to 31.8 in May.

A higher reading could signal a pickup in spending, boosting inflation expectations and supporting a more hawkish BoJ stance. A weaker number, however, may dim expectations for policy tightening.

Tokyo Inflation and Retail Sales in the Spotlight

On Friday, May 30, key stats could significantly impact BoJ policy guidance.

Economists forecast a 0.3% month-on-month drop in April retail sales, extending the 1.2% decline in March. A larger-than-expected fall could dampen inflationary pressures and raise recession concerns, impacting BoJ rate hike expectations. However, a surprise rise in retail sales may support a more hawkish BoJ stance.

Economists expect Tokyo’s CPI Ex-Food and Energy to rise 2.1% year-on-year in May, up from 2% in April. A stronger reading could fuel rate hike bets, given the BoJ’s 2% target, while a softer print would likely support a more cautious BoJ.

Other stats include unemployment and industrial production numbers. However, these will likely play second fiddle to the retail sales and inflation data.

USD/JPY Outlook: Trade, Consumption, and Policy Cues in Focus

USD/JPY continues to face heightened volatility, with US trade news, fiscal policy, and central bank cues influencing near-term trends.

• Bullish Yen Scenario: Positive Japanese data, hawkish BoJ cues, or rising trade tensions could send USD/JPY toward 140.
• Yen Carry Trade Unwind Risks: A USD/JPY drop below the September 2024 low of 139.576 could accelerate the Yen Carry Trade Unwind.
• Bearish Yen Scenario: Weak economic indicators, dovish BoJ signals, or easing trade tensions may drive the pair above 145.

US Data to Guide Fed Policy and Dollar Moves

In the US, consumer confidence, GDP, and the Personal Income and Outlays Report will be key. Markets will also parse the FOMC Meeting Minutes (May 28) and Fed speeches for policy cues.

Key events include:

• CB Consumer Confidence Index (May 27), to rise from 86 in April to 88 in May.
• Q1 GDP – 2nd Estimate (May 29).
• Personal Income and Outlays Report (May 30).

Robust US data may strengthen the dollar and delay Fed rate cuts, while weaker readings could revive recession fears and rate cut bets.

According to the preliminary report, the US economy contracted by 0.3% in Q1 2025. A deeper contraction may fuel speculation about a Fed rate cut, dragging USD/JPY lower. Conversely, a higher reading could dampen Fed rate cut bets, sending USD/JPY higher.

Friday’s Personal Income and Outlays Report, however, will be crucial for the Fed’s policy stance. Economists expect the Core PCE Price Index to rise 2.6% year-on-year in April, mirroring March’s trend.

A higher reading would curb bets on a Q3 2025 Fed rate cut, while a lower reading may support a more dovish policy stance. Investors should also consider personal income and spending trends. Upbeat numbers could signal rising inflation, while lower readings may suggest a softer inflation outlook.

Potential Price Scenarios:

• Bullish US Dollar Scenario: Stronger US economic data and hawkish Fed bets could drive USD/JPY above 145.
• Bearish US Dollar Scenario: Weaker-than-expected US data and dovish Fed cues may drag USD/JPY toward 140.

Short-term Forecast:

USD/JPY’s direction hinges on trade talks, economic indicators, and central bank signals. Trade talks, however, may carry the greatest market weight in the near term.

USD/JPY Price Action

Daily Chart

On the daily chart, the USD/JPY trades below the 50-day and 200-day EMAs, maintaining a bearish technical outlook.

A breakout above 145 could open the door to the 50-day EMA. Sustained upward momentum may target the April 9 high of 148.280.

On the downside, a drop below the May 23 low of 142.419 could bring the 140.309 support level and the September 2024 low of 139.576 into play.

The 14-day Relative Strength Index (RSI) sits at 41.27, suggesting potential for further downside before entering oversold territory (RSI< 30).

Final Thoughts

USD/JPY may experience heightened volatility, with a focus on trade developments, economic indicators, and central bank policy. Traders should monitor real-time headlines and policy signals closely.

For a deeper dive, explore our technical analysis here.