BOJ Holds Dovish Stance; Dollar Stable Despite Rate Cut Expectations

Asian currencies experienced slight gains on Wednesday, driven by weakened U.S. labor data, fueling expectations of early interest rate cuts by the Federal Reserve. This sentiment helped offset persistent concerns about China's economic health.

The USD/JPY currency pair demonstrated resilience, stabilizing above three-month lows during the Asian session. This stability was attributed to slight increases in U.S. Treasury yields and the Bank of Japan's Deputy Governor Ryozo Himino maintaining a dovish stance, emphasizing the continuation of easy monetary policies until Japan's price stability targets are met.

Tokyo's Consumer Price Index (CPI) eased more than expected, aligning closely with the Bank of Japan's view that cost-push pressures in the economy will gradually dissipate. While service prices saw their fastest increase since 1994, driven by a spike in hotel fees.

The core index, excluding both fresh food and fuel prices, rose 3.6% in November, slowing from the previous month. With inflation having exceeded the Bank of Japan's 2% target for over a year, market players anticipate a phase-out of the massive stimulus in the coming year.

Japanese consumer spending has cooled in recent months, reflected in October's retail sales missing expectations due to high inflation, stagnant wages, and a weak yen. An upcoming Reuters poll suggests a slight upward revision in private sector capital investment, with the revised GDP data for July-September expected to show a contraction of 2.0%. Despite an increase in capital expenditure in Q3 compared to the previous year, uncertainties persist in the domestic and global outlooks. Japan's economy faces headwinds from high inflation impacting household spending and slowing global demand, particularly from China, putting pressure on manufacturers.

Japanese manufacturers showed improved sentiment for a second consecutive month, with the auto sector recovering from last year's semiconductor shortage. Service activity, while expanding at the slowest pace in a year, maintained an optimistic outlook. The service sector has been a bright spot for Japan's economy, offsetting challenges in manufacturing.

BOJ Governor Kazuo Ueda emphasizes the need to maintain ultra-loose policies until cost-push inflation transitions to demand-driven increases supported by solid wage gains. However, concerns over slowing global growth and weak domestic consumption have clouded the prospect of a BOJ exit, especially after Japan's economy contracted in July-September.

On the global front, the U.S. dollar reached a two-week high. The dollar's strength was supported by modest increases in U.S. Treasury yields. However, signs of weakness emerged due to investor expectations of a potential Federal Reserve rate cut in early 2024. Softening U.S. economic data and comments from Fed officials have fueled expectations of the end of the rate-increase cycle.

November's U.S. private payroll growth was below expectations, signaling a cooling labor market. Job openings declined in October, supporting expectations of a labor market slowdown and potential Fed rate cuts. The upcoming non-farm payrolls data is awaited for a clearer picture.

While markets continue to factor in a minimum of 125 basis points in interest rate cuts by the U.S. Federal Reserve in the coming year, the dollar has remained stable due to growing expectations of rate cuts by other central banks. The CME FedWatch tool indicates a 60% probability of a rate cut in March, up from 50% the previous week.

Data for Technical Analysis (15 Min) CFD USD/JPY

Resistance : 145.33, 145.39, 145.50

Support : 145.11, 145.05, 144.94

15Min Outlook    

Source: Investing.com

Buy/Long 1 If the support at the price range 144.91 – 145.11 is touched, but the support at 145.11 cannot be broken, the TP may be set around 145.33 and the SL around 144.81, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 145.33 – 145.53, TP may be set around 145.80 and SL around 145.01, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 145.33 – 145.53 is touched, but the resistance at 145.33 cannot be broken, the TP may be set around 145.04 and the SL around 145.63, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 144.91 – 145.11, TP may be set around 144.76 and SL around 145.43, or up to the risk appetite.       

Pivot Points Dec 07, 2023 08:48AM GMT

Sources: Investing 1, Investing 2