Asia Braces for Subdued Market Activity Amid Yen Pressure and Economic Uncertainties

Financial market activity in Asia on Monday is expected to be subdued due to the closure of U.S. markets for the Martin Luther King Jr. holiday. In Japan, the yen remains under pressure, driven by expectations that the Bank of Japan will maintain its ultra-loose policy settings at its upcoming policy meeting.

Concerns arise as Japanese workers' real wages have been shrinking for the 20th consecutive month, posing challenges to the sustainability of the country's economic recovery during annual pay negotiations with labor unions. The Bank of Japan closely monitors wage trends and inflation outlooks as crucial factors in considering adjustments to its negative interest rate policy.

In November, inflation-adjusted real wages fell by 3.0% year-on-year, a faster decline than the 2.3% decrease in October. The consumer inflation rate, excluding owner's equivalent rent (OER) but including fresh food prices, decelerated to 3.3%, the lowest since July 2022, due to falling fuel costs and moderating food price hikes.

A Reuters poll suggests that Japan's consumer inflation rate likely decelerated in December for the second consecutive month, reaching the lowest point in 1-1/2 years. Smaller increases in food prices and diminishing energy costs contribute to this decline. The poll also anticipates a fall in wholesale prices for the first time in nearly three years, reducing the urgency for the Bank of Japan to rush into monetary normalization.

The Bank of Japan is expected to maintain its cautious optimism in its quarterly outlook report, projecting that trend inflation will remain near the 2% target despite global economic uncertainties. However, the board may revise its core inflation forecast for fiscal 2024 downward due to recent declines in crude oil prices. The central bank remains divided on the timing of exiting negative interest rates, with Governor Kazuo Ueda emphasizing the importance of sustained 2% inflation and rising wages.

China's economic weakness, signs of a global slowdown, and soft domestic consumption contribute to uncertainties in Japan's recovery and price outlook. The January policy shift expectations have diminished due to external factors, such as a recent earthquake and dovish comments by BOJ Governor Ueda. The central bank's report and post-meeting briefing may provide insights into the potential phase-out of stimulus in March or April, with annual wage negotiations in mid-March influencing the decision.

Meanwhile, Japan's current account surpluses in November, the second consecutive month of records, offer relief to concerns about balance of payments weakening. The trade deficit narrowed, and the service balance turned surplus due to increased tourism.

In the currency market, the dollar ebbed on Monday amid renewed expectations of a Federal Reserve rate cut in March. Recent data showing an unexpected fall in U.S. producer prices in December has increased the likelihood of a rate cut, with a 78% chance according to market pricing, compared to 68% a week earlier. This has implications for global financial markets, including those in Asia, as investors adjust their strategies in response to evolving monetary policies with the yen might experience a gradual and ongoing weakening relative to the US dollar.

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

Resistance : 145.20, 145.29, 145.44

Support : 144.92, 144.83, 144.69

5H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 144.82 – 144.92 is touched, but the support at 144.92 cannot be broken, the TP may be set around 145.25 and the SL around 144.77, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 145.20 – 145.30, TP may be set around 145.48 and SL around 144.87, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 145.20 – 145.30 is touched, but the resistance at 145.20 cannot be broken, the TP may be set around 144.88 and the SL around 145.35, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 144.82 – 144.92, TP may be set around 144.66 and SL around 145.25, or up to the risk appetite.       

Pivot Points Jan 15, 2024 03:07AM GMT

Sources: Investing 1, Investing 2