USD/JPY forecast 2024: golden cross points to more gains

The USD/JPY exchange rate rose slightly in a low-volume environment after the latest Japan consumer inflation data. It was trading at 157.65, a few points below this week’s high of 158.10, which was also the highest swing since July 2024. The pair may experience more gains in 2024 now that it has formed a golden cross pattern.

Odds of BoJ rate hikes uncertain

The USD/JPY pair held steady after Japan’s statistics agency published December's latest Tokyo inflation report.

This report showed that the headline Consumer Price Index (CPI) rose from 2.5% in November to 3.0% in December. Core CPI, on the other hand, rose from 2.2% to 2.4%, missing the median estimate of 2.5%. The CPI fell slightly to 1.1%, excluding food and energy products.

Analysts watch Tokyo’s inflation figure closely because most people in Japan live there. It is usually a good predictor of the country’s inflation numbers.

These numbers came as the Bank of Japan (BoJ) is considering when to deliver another interest rate hike again. In a statement on Thursday, Kazuo Ueda, the governor, avoided providing hints on when rate cuts wll happen. 

He said that the timing and pace of adjusting the degree of accommodation would depend on progress on inflation and other macro data.

This statement came after the BoJ left interest rates unchanged again and hinted that more data may be needed to determine when to cut.

The BoJ has already slashed interest rates two times this year. It first hiked by 0.10% and exited negative rates. It then hiked by 0.25%, moving them to the highest level in over a decade. 

BoJ’s rate hikes have a major implication because it is the third-biggest economy after the US and China. It is also highly indebted, with most of the public debt held by the bank. That means that a single rate hike leads to more government spending on debt repayments. 

The BoJ is working to strike a balance between fighting the elevated inflation and stimulating the economy. 

Recent data shows that the economy is still struggling, and the auto sector faces major headwinds. A report on Friday showed that industrial production dropped by 2.3% in November after growing by 2.8% a month earlier.

A decline in this production was offset by a big increase in retail sales, which rose from 1.3% to 2.8%.

As China's exports jump, automakers like Toyota, Honda, and Nissan face major headwinds. Honda and Nissan are now working on a merger deal in a move that will create the third-biggest automaker in terms of sales.

Meanwhile, the Federal Reserve has hinted that it will deliver fewer rates than expected in 2025 as US inflation remains high. 

USD/JPY technical analysis

USD/JPY chart by TradingView

The daily chart shows that the USD to JPY exchange rate has been in a slow uptrend in the past few months. It rose from 140 on September 16 to 158, its highest level since July 17 as the impact of the yen carry trade unwind ended.

The pair has formed a golden cross pattern, while the MACD indicator has risen above the zero line. Also, the Relative Strength Index (RSI) has continued rising above the ascending trendline.

Therefore, the pair will likely continue rising as bulls target the next important resistance point at 161.91, its highest level in 2024. This rally will continue because of the divergence between the Federal Reserve and the BoJ. 

This divergence is happening as the BoJ hikes rates while the Fed cuts them, which has made the yen carry trade invalid.