Japan’s CPI Moderates, Business Confidence Rises, Yen's Uncertain Future

In September, Japan's core consumer price index (CPI) rose 2.5%, slightly below the expected 2.6% and down from August's 2.8%. The core reading, excluding both fresh food and energy, fell to 3.8% from the previous month's 4%, remaining near 40-year highs. This was driven by lower prices in recreational activities and discretionary items, reflecting households adjusting budgets due to consistently high food costs. Core inflation in Tokyo slowed for the third consecutive month, primarily due to declining fuel costs, indicating potential relief from cost-push pressures for the fragile economic recovery.

Other economic indicators present a mixed outlook for Japan's economy. While the unemployment rate unexpectedly grew to 2.7% in August, retail sales surpassed expectations. The country's economic expansion in the April-June quarter is expected to be followed by a mild contraction in the July-September quarter due to sluggish global demand affecting exports.

Business sentiment, as reflected in the Bank of Japan's tankan survey, improved in the three months to September, with big manufacturers' confidence rising. Big non-manufacturers' index suggested resilience in the face of slowing global growth. The survey indicated that big firms plan to increase capital expenditure by 13.6% in the fiscal year ending in March 2024.

However, Japan's factory activity contracted in September at the fastest pace in seven months, driven by weakening global economic conditions and declining demand. The weak yen, resulting from the BOJ's ultra-loose monetary policy, contributed to higher input price inflation.

Japanese Finance Minister Shunichi Suzuki stated that Japanese authorities have not established a "defence line" in dealing with currencies, while cautioning that the yen's weakness has progressed significantly. Suzuki emphasized that they would consider all options if currency movements become excessive.

On the international front, the U.S. dollar index remained close to its recent 10-month high, supported by expectations of prolonged higher U.S. rates. The dollar's strength pushed the yen to an 11-month low. Currency movements were subdued in early Asia trade, with the narrowly-averted U.S. government shutdown providing potential relief to markets.

U.S. Congress passed a stopgap funding bill over the weekend, avoiding the fourth government shutdown in a decade. President Joe Biden promptly signed it into law, preventing disruptions to government services and the pay of 4 million employees. Hence, without intervention from Japanese authorities and a shift in the monetary policy direction by the BOJ, the yen is likely to stabilize and potentially weaken against the US dollar. However, there could be some yen appreciation if future Japanese economic data indicates strength.

Data for Technical Analysis (5H) CFD USD/JPY

Resistance : 149.75, 149.82, 149.94

Support : 149.51, 149.44, 149.32

5H Outlook 

Source: Investing.com

Buy/Long 1 If the support at the price range 149.41 – 149.51 is touched, but the support at 149.51 cannot be broken, the TP may be set around 149.83 and the SL around 149.36, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 149.75 – 149.85, TP may be set around 150.00 and SL around 149.46, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 149.75 – 149.85 is touched, but the resistance at 149.75 cannot be broken, the TP may be set around 149.51 and the SL around 149.90, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 149.41 – 149.51, TP may be set around 149.32 and SL around 149.80, or up to the risk appetite.       

Pivot Points Oct 02, 2023 02:35AM GMT

Sources: Investing 1, Investing 2