USD/JPY Stable as Fed Rate Cut Hopes Offset BOJ’s Dovish Stance

Asian currencies edged higher as U.S. inflation data reinforced expectations of a Federal Reserve rate cut next week, while attention turned to China’s annual policy meeting for signs of stimulus. Meanwhile, the Bank of Japan (BOJ) is likely to maintain its current interest rates at its December 18-19 meeting, preferring to analyze global risks and next year’s wage outlook further.

The BOJ faces competing pressures, including a potential yen depreciation if the U.S. Fed surprises markets. The decision will hinge on broader wage trends and corporate pricing strategies, with focus on next year’s labor negotiations and regional economic data. Current market pricing suggests less than a 30% chance of a December hike.

Meanwhile, Japanese firms remain cautious about Donald Trump’s return to the U.S. presidency, citing concerns over potential tariff hikes and trade tensions. While some see opportunities in U.S. domestic policy shifts, a majority expect challenges, particularly from unpredictable economic measures. Despite these uncertainties, many Japanese companies project earnings growth, supported by moderate economic expansion and the BOJ's incremental normalization of monetary policy.

Japan’s wholesale inflation has accelerated for three consecutive months, with November’s corporate goods price index (CGPI) rising 3.7% year-on-year, driven by higher food, metal, and plastic costs. The index marked a record high for the third month, reflecting mounting input costs.

Economic data indicates moderate improvement in business sentiment, as the December Tankan survey showed manufacturers' confidence rising to the highest level since March 2022. However, concerns linger about weak external demand, consumption, and risks from U.S. trade policies and China's slowdown. GDP growth in Q3 was revised upward to 1.2% annually, with support from capital investment and exports, but private consumption weakened, raising doubts about the economy's resilience. Meanwhile, real wages showed signs of stabilization in October with a 2.7% base salary increase, the fastest since 1992, offering potential support for domestic demand.

The U.S. dollar weakened slightly on growing expectations of a Federal Reserve interest rate cut next week. U.S. inflation rose in November at its fastest pace in seven months, aligning with expectations. Key factors, including slower rent increases and eased vehicle insurance costs, suggest services inflation may be stabilizing.

November saw the largest rise in U.S. producer prices in five months, largely driven by surging egg prices amid an avian flu outbreak. However, easing service costs, such as airline fares, highlight disinflationary trends. Economists adjusted inflation estimates downward, reinforcing expectations of another rate cut by the Federal Reserve.

Small business optimism reached its highest level in nearly 3.5 years in November, driven by post-election confidence following Donald Trump’s victory. Republican-leaning business owners anticipate favorable policies, further boosting sentiment.

Jobless claims rose unexpectedly, signaling a cooling labor market. Lower mortgage rates, now at a two-month low, may stimulate housing demand, but broader economic concerns persist. The U.S. budget deficit for November surged by 17% year-over-year to $367 billion, primarily due to accelerated benefit payments.

Data for Technical Analysis (1H) CFD USD/JPY

Resistance : 152.91, 152.97, 153.07

Support : 152.71, 152.65, 152.55

1H Outlook

Source: TradingView  

Buy/Long 1 If the support at the price range 152.57 – 152.71 is touched, but the support at 152.71 cannot be broken, the TP may be set around 152.92 and the SL around 152.50, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 152.91 – 153.05, TP may be set around 153.20 and SL around 152.64, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 152.91 – 153.05 is touched, but the resistance at 152.91 cannot be broken, the TP may be set around 152.66 and the SL around 153.12, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 152.57 – 152.71, TP may be set around 152.45 and SL around 152.98, or up to the risk appetite.       

Pivot Points Dec 13, 2024 02:11AM GMT