The release of inflation figures plays a crucial role in influencing the rate path set by the Bank of Japan. Specifically, service sector-driven inflationary pressures can provide insights into potential discussions around the timing of an interest rate hike. Economists are predicting that the annual inflation rate will hold steady at 2.8% for the month of March, with core inflation expected to dip slightly from 2.8% to 2.7%. These numbers are significant as they could shape future monetary policy decisions by the Bank of Japan.
On Monday, investors will be closely watching the NY Empire State Manufacturing Index and retail sales figures, particularly in the context of the USD/JPY exchange rate. Positive trends in consumer spending reflected in retail sales could potentially fuel demand-driven inflation, thereby impacting the timing of a possible rate cut by the Federal Reserve. Economists are anticipating a 0.3% increase in retail sales for March, following a 0.6% rise in February.
Impact of Housing Sector on Consumer Confidence
The housing sector, often viewed as a leading indicator of the US economy, will be under scrutiny on Tuesday. Deterioration in housing market conditions can have a direct impact on consumer confidence and spending patterns. Notably, adverse conditions in the housing market could alleviate inflationary pressures related to housing services, an area of concern for the Fed. Market experts are forecasting a 0.7% decline in building permits for March and an 0.8% drop in housing starts.
Thursday will see the focus shift to initial jobless claims data and the Philly Fed Manufacturing Index. A rise in jobless claims could reignite speculation about a potential Fed rate cut in June. Weaker labor market conditions have the potential to constrain wage growth, thereby affecting disposable income levels. Economists are expecting initial jobless claims to edge up from 211k to 212k in April. Additionally, trends in the Philly Fed Manufacturing Index will also be a point of interest for investors as they assess the broader economic landscape.
In addition to economic data releases, investors should pay attention to speeches by Federal Reserve Open Market Committee (FOMC) members. The remarks by key figures like Fed Chair Powell and others – Austan Goolsbee, Loretta Mester, Mary Daly, Michelle Bowman, and Raphael Bostic – can provide valuable insights into the monetary policy outlook. Near-term trends in the USD/JPY exchange rate will be influenced not only by economic indicators but also by developments in the Middle East and statements from central bank officials.
The USD/JPY exchange rate has been trading comfortably above the 50-day and 200-day Exponential Moving Averages (EMAs), signaling a bullish bias. A breakout above the April 12 high of 153.384 could potentially pave the way for a move towards the 154 handle. Conversely, a breach below the 152.500 level might bring the 50-day EMA into play, offering support for bearish momentum towards the 148.529 level. The Relative Strength Index (RSI) at 72.50 indicates that the USD/JPY is currently in overbought territory, suggesting a possible increase in selling pressure at higher price levels.
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