Japan is starting to show signs of economic improvement.

The Japanese yen has strengthened, reaching 145 yen per US dollar, supported by positive sentiments regarding future monetary policy. Additionally, the country's underlying inflation rate has started to decrease again, although the Bank of Japan (BoJ) anticipates a potential increase in inflation due to heightened imports. Several economic indicators have contributed to bolstering the yen, such as reduced unemployment rates, growing service sector PMI, and increased foreign investments.

The Bank of Japan has maintained its interest rate at -0.1%, as predicted by investors. Quarterly forecasts by the BoJ have adjusted the expected inflation rates higher for 2023 and 2024 to 2.8% from 1.3% and 1.2%, respectively, surpassing the 2% target. However, it is predicted that inflation will ease to 1.7% in 2025 due to reduced impacts from higher oil prices and increased imports in the past year.

Tokyo's underlying inflation rate dropped to 2.3% on a yearly basis in November, down from 2.7% in the previous month, attributed to ongoing downward pressures on inflation. While this has positively affected the overall economy and brought it closer to the 2% target, BoJ policymakers believe that continued easing monetary policy remains necessary as Japan has not shown strong signs of resuming growth.

Japan's unemployment rate fell more than expected to 2.5% in October, with a decrease of 20,000 unemployed individuals to 1.75 million. However, despite the reduction in the number of unemployed, hiring decreased by 70,000 to 67.49 million, and the labor force decreased by 60,000 to 69.25 million. The job-to-applicant ratio stood at 1.3, indicating companies still require a significant workforce.

Retail sales in Japan increased by 4.2% year-on-year in October, suggesting sustained recovery in the country's consumer sector from the economic downturn caused by the pandemic. Notable growth areas include increased automobile sales by 8.2% and sales in food & beverages, also up by 8.2%.

The yield on Japan's 10-year government bonds rose above 0.75%, rebounding from below 0.7%. This was influenced by remarks from the Governor of the Bank of Japan, Kazuo Ueda, leading investors to believe that BoJ might adjust its negative interest rate policy sooner than expected. Notably, Japan has exceeded BoJ's 2% inflation target for over a year, leading to speculations that BoJ might terminate substantial economic stimulus measures in the coming year.

Techical analysis data (5H)

Resistance: 145.65, 146.25, 146.80

Support: 144.50, 143.95, 143.35

Source: Investing.com