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With the first policy meeting under the leadership of the new Bank of Japan Governor to come this week, and not to mention a shed load of data releases throughout the week from the US ahead of next week’s FOMC meeting, the USD/JPY outlook could be shifted significantly and is thus our featured currency pair this week.

The Fed is in the blackout period ahead of next week’s FOMC meeting, so we won’t be hearing any surprising comments from FOMC officials this week. This means all the focus will be on incoming data from both the US and Japan, as well as the BOJ rate decision itself.

So, are we going to see the USD/JPY follow in the footsteps of the EUR/JPY, which has broken to an 8.5-year high above 148.40, or the Dollar Index, which remains rooted near the recent yearly lows?
 

USD/JPY Outlook: Top 3 macro events to watch this week

Here are the top three events of the week that could impact the USD/JPY outlook this week:
 

Advance US GDP

Thursday, 27 April

13:30 BST

We have seen some rather weak economic pointers of late, although the nonfarm payrolls report still surprised to the upside. But what about GDP? If we see weakness in the economy then investors may start betting that the Fed will not only stop hiking interest rates past May, but soon it may even start loosening monetary policy again.

In addition to the GDP, we have lots of other key data releases from the US this week. We have seen some cracks starting to appear in US data, including in the housing market, while business sentiment remains in depression mode.

The potential for US economic activity to drop more sharply than expected means the Fed may respond later in the year by being more aggressive in cutting interest rates, just like how they were (very late) when tightening policy in response to soaring inflation. If this is what the market starts to price in, in response to this week’s macro events, then the USD/JPY could come under renewed pressure or at best remain below 135.00 resistance.
 

BOJ monetary policy decision

Friday, 28 April

04:00 BST

This will be the first policy meeting under the leadership of the new Bank of Japan Governor, Kazuo Ueda. Given that Ueda has already mentioned that he will continue with the BOJ's current policy stance, the yen has weakened across the board. But be mindful of any potential surprises with regard to the BoJ’s yield curve control (YCC) settings. Any policy change would likely trigger a sharp rally in the yen and a sell-off in yen crosses like USD/JPY and AUD/JPY.

One reason why the BOJ might avoid altering its policy is concerns about Japan returning to deflation. This means it may postpone any plans to change the YCC policy until next year – which is why XXX/JPY pairs have been rising of late.
 

US Core PCE Price Index

Friday, 28 April

13:30 BST

As we found out last week, US CPI cooled to a 5% annual rate, which was more than expected. There have been more signs of inflation heading lower. Yet the hawks at the FOMC camp want to see more evidence before pausing rate hikes. The Core PCE Price Index is the Fed’s favorite measure of inflation, and the last inflation gauge before the Fed’s meeting next week. So, it could tilt policy decision if it deviates significantly from expectations. A weaker print could send the dollar plunging.
 

USD/JPY Economic Calendar

Here’s the economic calendar, showing all the key data releases that could impact the USD/JPY this week:

USD/JPY technical analysis

Ahead of the above macro events, the USD/JPY remains trapped bang in the middle of its recent range. Hardly surprising. Many traders wouldn’t want to commit in either direction, given the big risk events coming up in the next week or two (see above for more).

The higher lows since the January nadir are certainly not bearish indicators. Yet, the inability of the USD/JPY to challenge its 200-day average means the longer-term outlook remains bearish, despite other yen pairs rallying – most notably the EUR/JPY.

We would start feeling more bearish towards this pair if support in the 133.40 to 133.80 range breaks. A move below 132.00 would create an interim lower low, and thus a bearish signal.

But while it holds above that 133.40 to 133.80 support range, the bulls will be eyeing a potential break above 135.00 resistance to possibly set up an attack on bears’ stops above this level.  A potential move towards 136.00 and then the 200-day average around 137.00 cannot be rule out either.

All told the USD/JPY at its current state is not one for trend followers, as it has been quite choppy inside a range. But as volatility continues to contract, soon we will see range expansion. And that move could be quite explosive.

(Click on image to enlarge)

 Source: TradingView.com

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