The weaker Japanese Yen could cause a spike in import costs and inflation. A pickup in inflationary pressures may impact household spending and the Japanese economy.

On Friday, inflation numbers from Tokyo will give the BoJ a glimpse of the effects of the weaker Yen on consumer prices. The Bank of Japan will also deliver its April monetary policy decision on Friday. Hotter-than-expected inflation numbers could trigger rate hike discussions. More hawkish comments could ease pressure on the Japanese government to intervene to bolster the Yen.

US Economic Calendar: Chicago Fed National Activity Index

The Chicago Fed National Activity Index (CFNAI) will garner investor attention on Monday. Economists expect the CFNAI to increase from 0.05 to 0.09 in April. Better-than-expected numbers would support market expectations that the US could avoid a recession. However, higher-than-expected numbers may further impact investor bets on multiple 2024 Fed rate cuts.

A robust US economy would support tight labor market conditions and wage growth. Upward trends in wage growth could increase disposable income. Higher disposable income levels could fuel consumer spending and demand-driven inflation. A higher-for-longer Fed rate path could raise borrowing costs and reduce disposable income.

According to the CME FedWatch Tool, the chances of the Fed holding interest rates at 5.5% in September increased from 23.5% to 35.5% in the week ending April 19.

Short-term Forecast

Near-term trends for the USD/JPY will likely hinge on inflation numbers from Japan and the US. Hotter-than-expected inflation numbers from Japan could raise investor bets on a BoJ rate hike. Sticky US inflation numbers could further delay the timing of a Fed rate cut. A narrowing in the interest rate differentials would pressure the USD/JPY pair.