The Bank of Japan may continue easing monetary policy.

The Japanese yen continues to depreciate, weakening to over 158 yen per dollar. This has prompted senior Japanese officials to issue a policy statement. Finance Minister Katsunobu Kato reiterated concerns about excessive speculation on the yen and signaled the government's readiness to intervene in the foreign exchange market should excessive volatility occur, following the intervention six months ago. However, the yen remains under pressure due to growing uncertainty over when the Bank of Japan might raise interest rates. Bank of Japan Governor Kazuo Ueda emphasized that any policy adjustments would depend on the current economic conditions, interest rates, and domestic economic growth potential, highlighting the importance of sustainable wage growth.

Governor Kazuo Ueda expects Japan's economy to approach the 2% inflation target more sustainably and stably. Achieving this inflation rate must align with current wage increases. Furthermore, the central bank will maintain its accommodative monetary policy to meet the inflation target. However, it also needs to assess external risks, particularly U.S. tax hikes and potential intensification of global conflicts.

Japan's leading economic index, which measures economic trends in the coming months based on data such as employment offers and consumer confidence, reached 109.1 in October, slightly higher than September's 108.9. This increase was driven by record-high employment and rising wages. The Cabinet Office reported that private sector employment trends in October showed a slight upward trend, while job offers in government agencies and open job positions remained stable. Meanwhile, private consumption recovered in October, though it remained subdued in certain areas.

Japan's unemployment rate stood at 2.5% in November, unchanged for two consecutive months. The number of unemployed individuals rose by 10,000 to 1.72 million, while employment increased by 100,000 to 68.08 million, marking the largest employment growth in months. The labor force increased by 130,000 to 69.80 million, reflecting a slight increase in employment, consistent with higher wages.

Japan’s service sector PMI rose to 50.9 in December from 50.5 in November, marking the second consecutive month of growth. New orders increased for the sixth consecutive month, boosting employment, albeit modestly. Meanwhile, cost expenditures rose slightly due to higher raw material and labor costs, prompting businesses to pass some of these costs on to customers.

The yield on Japan's 10-year government bonds rose above 1.12%, reaching its highest level since 2011, as investors continued to assess the Bank of Japan's monetary policy outlook. Although Governor Kazuo Ueda emphasized that any policy adjustments would depend on various factors, he reiterated the necessity of sustainable wage increases. However, the growth trend in the services PMI might encourage the Bank of Japan to maintain its accommodative monetary policy to ensure continued domestic economic growth. Meanwhile, U.S. Treasury yields are expected to continue rising amid forecasts of a more gradual reduction in Federal Reserve interest rate hikes in 2025.