The Bank of Japan may raise interest rates soon.

The Japanese yen has weakened beyond 158 yen per U.S. dollar and is expected to continue depreciating as investors exercise greater caution ahead of the announcement of Japan's May inflation data, which could significantly impact the central bank's next policy move. Additionally, earlier this week, BOJ Governor Kazuo Ueda told Japan's parliament that the BOJ might raise interest rates again at its July meeting, depending on economic data at that time.

Japan's economy contracted by 1.8% year-on-year in the first quarter of 2024 after growing by 0.4% in the fourth quarter. This contraction is attributed to a continued decline in business spending, including investments and machinery purchases, reflecting weak private consumption. Furthermore, rising price pressures have directly impacted production costs and hindered expected wage increases.

Household spending in Japan increased by 0.5% year-on-year in April, marking the first rise since February 2023. Spending on education surged, followed by housing expenses, which rebounded after slowing in the previous year. However, electricity and water bills continued to rise as the Japanese government began reducing energy cost support.

BOJ board member Toyoaki Nakamura commented that the central bank should maintain its current monetary policy, given the impact of recent wage increases, which have boosted inflation rates that could rise rapidly. Data confirms that wage increases have reached their highest level in 30 years, with over 80% of small and medium-sized enterprises in Japan experiencing significant wage growth. Nonetheless, Nakamura, one of the BOJ board members, expressed opposing views, questioning whether these wage increases would sustain the domestic economy, as some small businesses remain vulnerable.

The yield on Japan's 10-year government bonds dropped sharply to around 0.93% as the BOJ decided to reduce its government bond purchases in the coming months. Investors are closely watching the July policy meeting, anticipating that the BOJ will announce another interest rate hike.

Techical analysis data (5H)

Resistance: 159.05, 159.2, 159.39

Source: Investing.com

Buy/Long 1: If the price touches support in the price range of 158.52 - 155.66 but cannot break the support at 155.66, you may set a TP at approximately 159.2 and SL at around 158.38 or according to your acceptable risk.

Buy/Long 2: If the price breaks the resistance in the price range of 159.05 - 159.2, you may set a TP at approximately 159.39 and SL at around 158.52 or according to your acceptable risk.

Sell/Short 1: If the price touches resistance in the price range of 159.05 - 159.2 but cannot break the resistance at 159.05, you may set a TP at approximately 158.52 and SL at around 159.39 or according to your acceptable risk.

Sell/Short 2: If the price breaks the support in the price range of 158.52 - 155.66, you may set a TP at approximately 158.38 and SL at around 159.2 or according to your acceptable risk.

Pivot point June 21, 2024 06:25 PM. GMT+7