Japan may raise interest rates again

The Japanese yen has strengthened slightly as global economic volatility leads investors to return to trading safer currencies. Additionally, the yen has been supported by investor expectations that the Bank of Japan (BoJ) may raise interest rates again. However, the yen might face increased pressure from U.S. economic data, particularly the announcement of the Personal Consumption Expenditures (PCE) data, which indicates the ability of U.S. consumers to spend.

The Bank of Japan may consider adjusting its monetary policy further if the yen continues to weaken significantly. The depreciation of the yen increases the cost of imported goods in yen terms, potentially leading to inflation if the costs of imported goods and services rise substantially. Seiji Adachi, one of the policymakers, added that it is still possible for Japan's inflation rate to fall to the 2% target, but uncertainties remain in both domestic and international economies. Therefore, the current monetary policy needs to avoid premature rate hikes to prevent exacerbating economic damage.

Japan's inflation rate fell to 2.5% year-on-year in April, down from 2.7% the previous month. This decrease was driven by only a slight increase in food prices and government-supported energy prices, resulting in a second consecutive month of declining inflation. However, this government support for energy prices is set to end in May, which could increase the cost of goods and potentially cause inflation to rise again.

Japan's leading economic indicators, which measure economic trends for the next 2-3 months based on job openings and consumer confidence data, rose to 112.2 in March. Despite a contraction in the manufacturing sector, the continued expansion of the services sector boosted consumer confidence.

The yield on 10-year Japanese government bonds rose above 1% as investors anticipated that the BoJ might raise interest rates if the yen continues to weaken. This increase was also supported by the termination of special monetary easing policies and the lifting of yield curve control earlier this year, affecting the supply of government bonds available for purchase. Meanwhile, the U.S. Federal Reserve remains primarily concerned with inflation, leading to increased yields on U.S. government bonds as well.

Techical analysis data (5H)

Resistance: 157.42, 157.87, 158.31

Source: Investing.com

Buy/Long 1: If the price touches support in the price range of 156.09 - 156.53 but cannot break the support at 156.53, you may set a TP at approximately 157.87 and SL at around 155.64 or according to your acceptable risk.

Buy/Long 2: If the price breaks the resistance in the price range of 157.42 - 157.87, you may set a TP at approximately 158.31 and SL at around 156.09 or according to your acceptable risk.

Sell/Short 1: If the price touches resistance in the price range of 157.42 - 157.87 but cannot break the resistance at 157.42, you may set a TP at approximately 156.09 and SL at around 158.31 or according to your acceptable risk.

Sell/Short 2: If the price breaks the support in the price range of 156.09 - 156.53, you may set a TP at approximately 155.64 and SL at around 157.87 or according to your acceptable risk.

Pivot point May 30, 2024 07:04 PM. GMT+7