BOJ's Ueda Cautions on December Rate Hike as Yen Depreciation Stokes Inflation

Bank of Japan (BOJ) Governor Kazuo Ueda acknowledged progress toward sustained wage-driven inflation but refrained from signaling a definitive December rate hike, emphasizing the need to assess economic, price, and financial conditions. While Ueda reaffirmed the BOJ's readiness to raise borrowing costs if forecasts align, external risks such as U.S. economic uncertainty and unstable financial markets add caution to the outlook.

The yen’s depreciation has intensified inflationary pressures, pushing October wholesale inflation to its fastest pace in over a year and increasing import costs for businesses. Simultaneously, consumer spending remains weak, with households curbing expenses in response to rising prices, undermining one of the BOJ’s key pillars for sustainable inflation. 

Japan’s economic growth slowed to 0.9% year-on-year in Q3, driven by stronger-than-expected private consumption offset by declining exports and soft capital investment, reflecting underlying vulnerabilities in the economy.

Meanwhile, the Japanese government is advancing a 13.5 trillion yen stimulus package to support low-income households and combat price pressures, including subsidies for fuel and utilities. It is also committing substantial funding to semiconductor and AI projects, aiming to boost economic resilience and technological competitiveness without increasing taxes or issuing deficit bonds.

The dollar strengthened against the yen on Monday after Bank of Japan (BOJ) Governor Kazuo Ueda reiterated the possibility of gradual interest rate hikes if economic conditions align with forecasts. Ueda emphasized the need to consider risks, including those in the U.S. economy, leaving market expectations for a December 19 hike at 54%, unchanged from before his comments. This lack of clarity pushed the dollar up 0.6% to 155.09 yen, recovering from last week’s low of 153.86 after Japan’s finance minister hinted at potential intervention to curb excessive yen depreciation.

Meanwhile, the U.S. economic calendar is subdued this week, focusing on housing market updates and earnings reports from major retailers like Walmart and Lowe’s, which may provide insights into consumer spending.

Investors will also monitor speeches from several Federal Reserve officials for monetary policy clues. Recent U.S. data showed inflation progress stalling, with producer prices rising in October due to higher service costs and import prices rebounding unexpectedly, driven by fuel and core goods. Combined with strong labor market signals, this has tempered expectations for aggressive rate cuts in 2025. Fed Chair Jerome Powell suggested that a slower pace of cuts might be prudent, making the December meeting a close call for a potential rate cut.

Data for Technical Analysis (30Min) CFD USD/JPY

Resistance : 154.63, 154.69, 154.80

Support : 154.41, 154.35, 154.24

30Min Outlook

Source: TradingView 

Buy/Long 1 If the support at the price range 154.26 – 154.41 is touched, but the support at 154.41 cannot be broken, the TP may be set around 154.63 and the SL around 154.19, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 154.63 – 154.78, TP may be set around 155.09 and SL around 154.34, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 154.63 – 154.78 is touched, but the resistance at 154.63 cannot be broken, the TP may be set around 154.35 and the SL around 154.85, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 154.26 – 154.41, TP may be set around 153.84 and SL around 154.70, or up to the risk appetite.       

Pivot Points Nov 18, 2024 04:49AM GMT