Inflation in Japan may reach the 2% target again.

The Japanese yen continues to weaken, nearing its five-month low at approximately 157 yen per dollar, a depreciation of over 4.9% this month. This rapid decline has sparked speculation that the Japanese government might intervene in the foreign exchange market to stabilize the yen. However, the Bank of Japan’s decision to leave interest rates unchanged last week has kept the yen under pressure, despite clearer indications of future rate hikes. At the same time, uncertainty about the U.S. economy following the appointment of President Donald Trump remains a significant risk factor, prompting the Bank of Japan to carefully consider any potential rate hikes.

Japan’s leading economic index, which forecasts economic trends in the coming months based on data such as job openings and consumer confidence, was reported at 109.1 in October, up from 108.9 in September. This marks the highest figure since July, supported by record-high employment and consistent wage increases since the beginning of the year. The Cabinet Office revealed that the current employment situation remains on an upward trajectory despite a slight slowdown. Job offers in the public sector remain steady, while private-sector hiring has seen significant growth, despite some areas experiencing a downturn.

Kazuo Ueda, the Governor of the Bank of Japan, expressed optimism that Japan’s inflation rate could sustainably and stably return to the 2% target. He suggested that such inflation stability could further support wage growth. Ueda emphasized the necessity for Japan’s domestic economy to achieve a stable inflationary environment, indicating that the central bank will maintain its accommodative monetary policy based on economic activity. He also underscored that any short-term interest rate hikes would depend on economic expansion, price inflation, and the financial system’s liquidity.

The manufacturing PMI rose to 49.5 in December from an eight-month low, beating market expectations of 49.2. However, the sector continued to contract for the sixth consecutive month, as new orders remained in decline and foreign sales dropped faster than anticipated. Nonetheless, increased employment provided some support, resulting in a slight rise in production output. Meanwhile, raw material costs reached their highest levels in four months due to the weaker yen, which has increased import costs.

The 10-year Japanese government bond yield remained stable at approximately 1.06%, as investors continued to evaluate the Bank of Japan’s monetary tightening outlook. Last week, Japan’s inflation rate was reported at 2.9%, the highest in three months, raising speculation that the central bank might need to consider further rate hikes next year to sustainably bring inflation back to its 2% target. However, the BoJ’s decision to keep rates steady in its December meeting, citing the need to assess wage trends, global economic uncertainties, and policies under the new U.S. administration, has left investors questioning the timing of any potential tightening measures. Meanwhile, U.S. Treasury yields have also stabilized as the Federal Reserve signals a potential rate cut following slightly lower-than-expected inflation data. Currently, investors anticipate a 50 basis point rate cut in 2025.

Techical analysis data (5H)

Resistance: 157.46, 157.6, 157.74

Source: Investing.com

Buy/Long 1: If the price touches support in the price range of 157.04 - 157.18 but cannot break the support at 157.18, you may set a TP at approximately 157.6 and SL at around 156.9 or according to your acceptable risk.

Buy/Long 2: If the price breaks the resistance in the price range of 157.46 - 157.6, you may set a TP at approximately 157.74 and SL at around 157.04 or according to your acceptable risk.

Sell/Short 1: If the price touches resistance in the price range of 157.46 - 157.6 but cannot break the resistance at 157.46, you may set a TP at approximately 157.04 and SL at around 157.74 or according to your acceptable risk.

Sell/Short 2: If the price breaks the support in the price range of 157.04 - 157.18, you may set a TP at approximately 156.9 and SL at around 157.6 or according to your acceptable risk.

Pivot point December 25, 2024 11:27 PM. GMT+7