USD/JPY Price Forecast: Set for second weekly gains; not out of the wood yet

• USD/JPY attracts buyers following the release of Japan’s National CPI report on Friday.
• A goodish pickup in the USD demand further contributes to the intraday positive move.
• The divergent Fed-BoJ policy expectations should cap the upside for the currency pair.

The USD/JPY pair builds on the previous day's bounce from the 147.20-147.15 area, or the weekly low, and gains strong follow-through positive traction on Friday. The momentum lifts spot prices back above mid-149.00s and is sponsored by the offered tone surrounding the Japanese Yen (JPY), which started losing ground following the release of Japan's consumer inflation figures. The headline National Consumer Price Index (CPI) rose 3.7% YoY in February compared to 4% in the previous month. Meanwhile, the nationwide core CPI – which excludes fresh food items – increased 3% from a year earlier, slower than the 3.2% in January. 

Apart from this, a goodish pickup in the US Dollar (USD) demand lends additional support to the USD/JPY pair and contributes to the intraday move up. The Federal Reserve (Fed) maintained its forecast for two 25 basis points rate cuts in 2025 at the end of March policy meeting on Wednesday and gave a bump higher to its inflation projection. The outlook assists the USD to attract buyers for the third successive day and build on its modest recovery from a multi-month low touched earlier this week. This, in turn, is seen as another factor acting as a tailwind for the currency pair, though any meaningful upside still seems elusive. 

Investors now seem convinced that a tariff-driven slowdown in the US economic activity might force the Fed to resume its rate-cutting cycle sooner than expected amid worries about a tariff-driven slowdown in the US economic activity. The current market pricing indicates the possibility that the US central bank would lower borrowing costs in June, July, and October policy meetings. Adding to this, US President Donald Trump’s repeated calls for the Fed to cut interest rates might keep a lid on the USD. This marks a big divergence in comparison to hawkish Bank of Japan (BoJ) expectations and should cap the USD/JPY pair. 

The preliminary results from Japan's annual spring labor negotiations revealed that firms largely agreed to union demands for strong wage growth for the third successive year, which could boost consumer spending and fuel inflationary pressures. Apart from this, the fact that inflation in Japan remains above the 2% target gives the BoJ more headroom to continue raising interest rates. This favors the JPY bulls and warrants some caution before positioning for a further appreciating move for the USD/JPY pair. Nevertheless, spot prices seem poised to end on a positive note for the second straight week amid the absent macro data from the US.

USD/JPY 4-hour chart

Technical Outlook

From a technical perspective, an intraday move beyond the 149.25-149.30 hurdle might have already set the stage for further gains. That said, oscillators on the daily chart – though they have been recovering from lower levels – are holding in negative territory. Hence, any subsequent move up is more likely to attract fresh sellers near the 150.00 psychological mark, which, in turn, should cap the USD/JPY pair near the 150.15 area. This is closely followed by the 200-period Simple Moving Average (SMA) on the 4-hour chart, which if cleared decisively might prompt a short-covering rally and lift spot prices to the 151.00 mark en route to the monthly peak, around the 151.30 region.

On the flip side, the 149.00 round figure now seems to protect the immediate downside ahead of the Asian session low, around the 148.60-148.55 region. A convincing break below could make the USD/JPY pair vulnerable to accelerate the fall towards the weekly low, around the 148.28-148.15 area touched on Thursday. Some follow-through selling below the 148.00 mark, and the 147.75 horizontal support, could pave the way for a decline towards the 147.30 region en route to the 147.00 mark and the 146.55-146.50 area, or the lowest level since early October touched earlier this month.