Japan is facing issues with a lessening manufacturing sector

The Japanese yen continues to show a persistent weakening trend, with it nearing the 150 JPY/USD level, which has prompted Japan to intervene in the foreign exchange market to support the yen. This intervention started about a year ago and analysts fear it might lead to Japan's involvement in currency manipulation once again. Such interventions have been observed consistently in many countries as foreign exchange reserves decrease to safeguard against inflation resulting from importing goods due to their own weakening currencies.

Naoyuki Shinohara, a former top currency diplomat for Japan, recently stated that Japan will not attempt to change the yen's trend through exchange rate intervention. This is because other fundamental economic factors in other areas remain fragile and require more urgent assistance.

Japan's annual inflation rate fell to 3.0% in September from 3.2% in the previous month, with fuel, electricity, and water prices in Japan decreasing rapidly. However, food prices have risen sharply, reaching the highest level since July 1976, increasing by as much as 9%. While the Japanese yen continues to exhibit a consistent weakening trend, it remains far from the 2% target set by the Bank of Japan (BoJ).

Japan's manufacturing sector PMI stands at 48.5 in October, indicating that the manufacturing sector is contracting further due to continuously decreasing new orders and reduced production capacity, resulting in a decline in employment levels. Although production costs remain stable, there is no immediate sign of recovery in Japan's manufacturing sector.

The service sector PMI has fallen to 51.1 in October from 53.9 the previous month, indicating a weakened growth trend as external demand begins to decrease. However, current labor shortages have led to increased employment and the potential for future growth. Confidence remains positive, although it has weakened compared to September.

Japan's leading economic indicator, used to measure the economic outlook in the next 2-3 months, has experienced a slight decrease, standing at 109.2. This is due to challenges in manufacturing growth and declining external demand, as well as ongoing conflicts that have led to decreased consumer confidence. Nevertheless, Japan's economy still has the potential for recovery, with the service sector showing the highest growth in the past three months in August.

Techical analysis data (5H)

Resistance: 149.98, 150.04, 150.12

Support: 149.84, 149.76, 149.70

Source: Investing.com