USDJPY hits highest since 1990! What’s next?

The Yen is now trading at its weakest levels against the US dollar in 34 years!

This major FX pair has crossed above the psychologically-important 155 level, ahead of a slew of major events that could rock FX markets:

1) Thursday @ 12:30 GMT: US 1Q GDP; weekly US initial jobless claims

Economists’ forecasts:

• US 1Q GDP = 2.5%

If so, that would be slower than the 3.4% GDP growth registered in 4Q 2023.

• Weekly initial jobless claims = 215,000

If so, that would be around similar levels from last week’s 212,000 print, underscoring the resilience of the US jobs market.

NOTE: A higher jobless claims number means more Americans are seeking unemployment benefits, which would point to weakness in the US jobs market.

2) Thursday @ 23:30 GMT: April Tokyo consumer price index (CPI)

Economists’ forecasts:

• CPI year-on-year (April 2024 vs. April 2023): 2.5%

If so, that 2.5% number would be slightly lower than the 2.6% year-on-year growth for March 2024.

The CPI prints excluding fresh food and energy prices are due to be released at the same time, and are expected to come in lower than March’s figures as well.

NOTE: The CPI is a widely-used gauge of inflation, and Tokyo’s CPI is seen as a barometer of the broader country’s inflation rates.

3) Friday morning local time: Bank of Japan (BoJ) policy decision

At its previous policy decision on March 19th, the Bank of Japan hiked its interest rates by 10 basis points.

That was the BoJ’s first rate hike in 17 years, ending the world’s last negative interest rates regime.

For tomorrow’s policy decision, economists widely expect the BoJ to keep rates unchanged.

Perhaps more crucially …

Traders will be on the lookout for any clues that could point to further rate hikes by the BoJ in 2024.

4) Friday @ 12:30 GMT: US March PCE Deflators

Economists’ forecasts:

• PCE Deflator month-on-month (March 2024 vs. February 2024): 0.3%

If so, that would match February’s 0.3% month-on-month figure.

• PCE Deflator year-on-year (March 2024 vs. March 2023): 2.6%

If so, that would be slightly higher than February’s 2.5% year-on-year figure.

• PCE Core Deflator month-on-month: 0.3%

If so, that would match February’s 0.3% month-on-month figure.

• PCE Core Deflator year-on-year: 2.7%

If so, that would be slightly lower than February’s 2.8% year-on-year figure.

NOTE: The PCE Deflators are the inflation measurements preferred by the Federal Reserve a.k.a. the Fed a.k.a. the central bank of the United States of America.

Recall that the US Federal Reserve has an inflation target of 2%.

And the Fed may be forced to keep its benchmark rates at the current peak, until they see meaningful signs that inflation is indeed slowing down.

POTENTIAL SCENARIOS:

• USDJPY could move even higher if:

- US GDP comes in above market expectations

- US initial weekly jobless claims come in below market expectations

- Tokyo CPI comes in below market expectations

- Bank of Japan doesn’t boost hopes for more incoming rate hikes (dovish)

- US PCE Deflators come in above market expectations

• USDJPY could fall if:

- US GDP comes in below market expectations

- US initial weekly jobless claims come in above market expectations

- Tokyo CPI comes in above market expectations

- Bank of Japan boosts hopes for more incoming rate hikes (hawkish)

- US PCE Deflators come in below market expectations

Key levels to watch:

According to Bloomberg’s FX forecast model, there’s a 77% chance that USDJPY would trade within the 151.90 to 159.00 range over the next one week.

However, the higher USDJPY goes (weaker Yen), the greater the threat of Japan’s intervention into its currency.

Recall back in September 2022, when USDJPY flirted with the 152.00 level, the Japanese government spent about US$ 60 billion to stop the Yen from weakening further.

Such “intervention” has been rumoured for quite some time now, with Japanese government officials also making public warnings about such an event.

Given the above listed events watchlist, coupled with the "intervention threat" ...

No surprise that markets are forecasting that USDJPY will see its most-volatile one-week period so far in 2024!

Also, markets are now the most bullish since July 2023 on the Yen's 1-week prospects against the US dollar!

In short, the data, events , and potential scenarios listed above could make for a massive trading opportunity for USDJPY in the immediate term.