The USD/JPY exchange rate rebounded last week as the US Dollar Index (DXY) recovered from its lowest level of the year. The pair rose from a low of 139.95 on Monday to a high of 143.2, up by 2.7% from its lowest level this year. This article provides a forecast ahead of the upcoming BoJ interest rate decision and key US economic data.
BoJ interest rate decision ahead
The main catalyst for the USD/JPY pair this week will be the Bank of Japan interest rate decision scheduled on Friday.
This will be an important meeting as the BoJ will provide more color on the economy and hints on what to expect later this year.
While Japan’s inflation is rising, analysts anticipate that the bank will maintain status quo as as ot observes the impact of Donald Trump’s tariffs.
Data released last Friday showed that consumer prices in Tokyo jumped from 2.9% in March to 3.5% this month. Core inflation, which excludes the volatile food and energy products, rose from 2.4% to 3.4%.
Tokyo inflation is closely monitored due to its large population, which stood at over 37 million as of 2024. Its population accounts for most of Japan, which has over 122.6 million people.
Another rate hike would likely harm Japan’s economy, as it would affect companies that are already struggling due to Trump’s tariffs.
Japan’s bond market is reflecting the fact that the BoJ will leave interest rates unchanged in this meeting. The ten-year bond yield has jumped to 1.3% from the year-to-date low of 1.057%, while the thirty-year yield has jumped from 2.20% to 2.7%.
Still, the BoJ will likely resume its rate hikes late this year. Additionally, there are indications that the US and Japan will reach a trade agreement later this year. In a recent note, analysts at Citi said:
“Pre-tariffs, maybe the sun was starting to shine a little more brightly in Tokyo. But when the reciprocal tariffs were put on, and the auto tariffs, which obviously are big too, we said no rate hikes this year.”
Read more: Japan reports record $63B US trade surplus amid high-stakes tariff talks
US data dump ahead
The USD/JPY exchange rate will react to the upcoming US data dump this week. This dump will start on Tuesday when the Conference Board will publish the latest consumer confidence data. This is important data that predicts consumer spending in the economy. A significant drop can help to predict a recession.
The other top data to watch will come out on Wednesday when the US will release the latest personal consumer expenditure (PCE) data. This is a crucial report that the Fed watches closely because it measures change of prices in the rural and urban areas.
The USD/JPY exchange rate is expected to react to the latest US GDP and non-farm payrolls (NFP) data released on Friday. All these numbers will help to predict whether the Fed will cut or hike interest rates.
USD/JPY technical analysis
USD/JPY chart by TradingView
The daily chart shows that the USD to JPY exchange rate has been in a strong downtrend in the past few months. This decline coincided with the significant US dollar index plunge.
The pair has formed an inverse cup and handle pattern whose lower side is at 139.98. Its recent pullback is part of the handle section.
It also formed a death cross pattern on March 12, a sign that bears are in control. Therefore, a combination of the death cross and the inverse C&H pattern will point to more downside in the coming weeks. If this happens, the next point to watch will be at 139.98. A drop below that level will point to more downside.
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