The economy of Japan is beginning to stabilize.

The Japanese yen has started to slightly strengthen today, while the Bank of Japan (BOJ) continues its accommodative monetary policy despite rising inflation. However, even in this context, there has been an expansion of the Yield Curve Control (YCC) policy. Additionally, there are expectations that Japan might reduce its holdings of U.S. government bonds to prevent the yen from depreciating too significantly. Japan holds a substantial amount of U.S. government bonds, leading some analysts to speculate about a potential sell-off in the near future.

Regarding the yield on Japan's 10-year government bonds, it has risen above 0.6%, reaching the highest level in nine years. This increase follows the BOJ's adjustment of the YCC policy, which led to higher yields on Japanese government bonds. The BOJ still maintains its short-term interest rate target at -0.1%. There are projections that the BOJ might make another adjustment to the YCC policy within this year instead of raising interest rates. This is due to Japan's high debt-to-GDP ratio and concerns that the domestic economy could face excessive burdens if interest rates were to increase.

Former head of the Bank of Japan's Foreign Exchange Department from 2011 to 2013, Atsushi Taketoshi, stated, "Japan will intervene when the yen becomes excessively weak, crossing 150. This would pose a significant political challenge for Prime Minister Fumio Kishida, as it would lead to significantly higher import prices, causing public discontent. Moreover, currency intervention is not a sustainable solution to yen weakness; it merely buys time."

The service sector PMI of Japan increased once again to 54.3 in August, up from 53.8 in July. This marks the fastest expansion since May. The growth was driven in part by a slight increase in new foreign business, even as the rate of expansion began to slow down. Concurrently, employment also rebounded after a slight contraction the previous month. However, business confidence continued to decline for the fourth consecutive month, reaching its lowest point since January.

On the other hand, the manufacturing sector's PMI saw a marginal increase to 49.7 in August from 49.6 in July. These figures indicate that factory activity contracted for the third consecutive month. Both production and export sales declined as well. While there was not significant growth in hiring, the increase in oil prices led to the sharpest rise in raw material costs in three months. Conversely, the weakening exchange rate contributed to the steepest reduction in output prices in two years.

Techical analysis data (5H)

Resistance: 145.79, 145.88, 146.01

Support: 145.57, 145.44, 145.35

Source: Investing.com