Japanese Yen Weekly Forecast: Will USD/JPY Break 140? BoJ and Fed Decisions Approach

USD/JPY Dips on Middle East Conflict

Rising Middle East tensions pressured USD/JPY in the week ending June 13. Israel warned of action against Iran before striking nuclear and missile-related facilities late on June 12. News of the attack on Iran fueled demand for the Japanese Yen as a safe-haven asset.

However, progress toward a US-China trade deal limited the losses. The USD/JPY pair fell 0.51% to close at 144.075. USD/JPY climbed to a mid-week high of 145.464 before sliding to a Friday low of 142.788.

Outlook: Geopolitics, Economic Data, and the Bank of Japan in Focus

Trade developments and the Iran-Israel conflict remain the key drivers for USD/JPY trends. However, traders should also consider the Bank of Japan’s interest rate decision, forward guidance, and incoming economic indicators for near-term price trends.

BoJ Decision and Outlook in Focus

The Bank of Japan will deliver its interest rate decision on Tuesday, June 17. Markets expect the BoJ to keep rates steady at 0.5% as US tariffs weigh on Japan’s economic outlook. With the BoJ unlikely to raise rates, the focus will be on the BoJ’s forward guidance. Continued support for a 2025 rate hike could boost Japanese Yen appetite, pressuring the USD/JPY pair. However, the Japanese Yen may face selling pressure if the BoJ closes the door on a 2025 move.

Ongoing US tariff threats and the Iran-Israel conflict could fuel economic uncertainty, supporting a more cautious policy stance.

Trade Terms in the Spotlight as Tariff Letters Loom

On Wednesday, June 18, Japan’s trade data will draw scrutiny as markets wait for Trump’s announcement of unilateral tariffs. Economists forecast exports to fall 5% year-on-year in May after rising 2% in April while expecting imports to drop 3.2% (April: -2.2%).

Weaker trade terms could impact Japan’s economy, signaling a more dovish BoJ stance. In Q1 2025, Japan’s economy stalled after expanding 0.6% in Q4 2024. Notably, external demand fell 0.8% quarter-on-quarter, reversing a 0.7% increase in Q4, stalling economic momentum.

Weaker-than-expected exports may continue to pressure Japan’s economy amid weakening household spending trends. Household spending slid 1.8% month-on-month in April, signaling a deteriorating macroeconomic outlook.

Inflation to Fuel BoJ Policy Speculation

On Friday, June 20, inflation figures from Japan will likely impact expectations of a 2025 BoJ rate hike. Economists forecast Japan’s inflation rate (ex-food and energy) to rise 3.1% year-on-year in May, up from 3%, potentially extending further from the BoJ’s 2% target.

Hotter-than-expected inflation figures may revive hopes for a 2025 BoJ policy move. Conversely, softer inflation readings would likely support the BoJ’s wait-and-see stance.

BoJ Governor Kazuo Ueda recently lifted hopes of a 2025 policy move, stating that the Bank would raise interest rates higher if inflation moved sustainably to the 2% target and economic growth aligned with projections.

USD/JPY Outlook: High Volatility Driven by Trade and Data

• Bullish Yen Scenario: Strong Japanese data, a hawkish BoJ rate hold, or rising geopolitical 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: Softer Japanese economic data, a dovish BoJ rate hold, or easing geopolitical risks may drive the pair toward 145.

US Retail Sales, the Fed, and Manufacturing to Dictate Dollar Trends

In the US, retail sales, the Fed’s interest rate decision, and manufacturing sector data will influence US dollar demand and USD/JPY trends.

Key events include:

• NY Empire State Manufacturing Index (June 16) to rise from -9.2 in May to -8.1 in June.
• US retail sales (June 17) to increase by 0.1% in May, mirroring April’s increase.
• FOMC Interest Rate Decision, Economic Projections, and Press Conference.
• Initial Jobless Claims (June 19) to increase from 247k (week ending June 7) to 255k (week ending June 14).
• Philly Fed Manufacturing Index (June 20) to rise from -4 in May to +2 in June.

Better-than-expected US manufacturing and labor market data may temper bets on a 2025 Fed rate cut, lifting US dollar demand. However, weaker numbers and a spike in jobless claims may raise bets on Fed policy easing.

Retail sales data could have more impact on the greenback ahead of Wednesday’s FOMC decision. A surprise fall in retail sales may dampen inflationary pressures, supporting a more dovish Fed stance. However, a higher reading may further temper Fed rate cut expectations.

FOMC Projections and Press Conference Pivotal for US Dollar Trends

While the data will influence US Dollar demand, the FOMC interest rate decision, economic projections, and press conference will be crucial. Economists expect the Fed to keep rates at 4.5% on June 18. Unless there is a surprise move, the focus will be on the economic projections and press conference.

A hawkish interest rate outlook and upbeat labor market and GDP forecasts could fuel US dollar appetite, driving USD/JPY higher. Conversely, signals of a Q3 Fed rate cut and weak projections could weigh on USD/JPY.

Potential Price Scenarios:

• Bullish US Dollar Scenario: Upbeat US data, a hawkish Fed hold, and easing geopolitical risks may send USD/JPY above 145 toward 146.285.
• Bearish US Dollar Scenario: Weak US data, a dovish Fed stance, and rising geopolitical tensions could drag USD/JPY toward 140.

Short-term Forecast:

USD/JPY’s near-term direction will depend on Middle East news, trade developments, economic data, and central bank commentary. That said, trade developments and geopolitical risks will likely carry the greatest market weight in the near term.

USD/JPY Price Action

Daily Chart

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

A break above the 50-day EMA could support a move toward the May 29 high of 146.285. Sustained momentum above 146.285 may send the pair toward the May 12 high of 148.647.

On the downside, a break below last week’s low of 142.788 may 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 49.06, suggesting potential for further losses before entering oversold territory (RSI< 30).

Key Takeaway

Traders should expect heightened volatility in USD/JPY as trade headlines, Middle East-related news, central bank policy decisions, and macroeconomic data drive sentiment. Staying attuned to real-time developments will be key to navigating the week ahead.

For a deeper dive, explore our technical analysis here and consult our economic calendar.