The Bank of Japan raises interest rates again.

The Japanese yen appreciated rapidly after the Bank of Japan (BoJ) decided to raise its interest rate by another 25 basis points (bps), bringing the policy rate to 0.5%. This rate hike has led investors to anticipate that the BoJ will need to curb inflation to align with its 2% target. Additionally, forecasts suggest that the central bank may continue its tight monetary policy in the second half of the year. Meanwhile, rising wages provide the BoJ with more options in its decision-making process.

The Bank of Japan raised its policy rate by 25 bps to 0.5%, marking the highest increase in 17 years. This decision reflects confidence in the continued momentum of wage growth in the business sector and the ability to bring inflation back to the central bank’s target range. It also marks the third rate hike since the central bank adopted its special accommodative monetary policy. Furthermore, the BoJ has indicated plans for further rate hikes and financial support reductions if economic data and inflation align with its projections.

The BoJ has revised its forecast for core inflation upward to 2.7% in 2024, driven by increasing labor shortages. However, it projects core inflation to slow to 2.4% in 2025 and 2% in 2026. At the same time, the BoJ has lowered its GDP growth forecast to 0.5% in 2024, 1.1% in 2025, and 1% in 2026.

Japanese manufacturers have expressed growing confidence in the domestic economy, as evidenced by the confidence index rising to +2 from -1 in December. This increase was supported by the materials industry, even though many manufacturers remain uncertain about policies under President Donald Trump. Industries with the highest confidence gains include crude oil refining and chemical production, which are vital to the domestic economy and key exports. Meanwhile, the machinery sector, including automotive electronics, saw a slight decline in January. Despite these mixed trends, most manufacturers remain cautious about the country’s economic growth, even as some economic indicators show signs of improvement.

Japan’s 10-year government bond yield surged to 1.23%, reaching a new one-week high following the BoJ’s decision to raise interest rates, as widely anticipated by the market. The central bank also hinted at the possibility of further rate hikes in the future. However, the contraction in the manufacturing sector remains a significant pressure point for the country’s export businesses. Investors are awaiting additional economic data to predict the BoJ’s next rate adjustment.

Techical analysis data (5H)

Resistance: 156.24, 156.91, 157.24

Source: Investing.com

Buy/Long 1: If the price touches support in the price range of 154.91 - 155.24 but cannot break the support at 155.24, you may set a TP at approximately 156.91 and SL at around 154.24 or according to your acceptable risk.

Buy/Long 2: If the price breaks the resistance in the price range of 156.24 - 156.91, you may set a TP at approximately 157.24 and SL at around 154.91 or according to your acceptable risk.

Sell/Short 1: If the price touches resistance in the price range of 156.24 - 156.91 but cannot break the resistance at 156.24, you may set a TP at approximately 154.91 and SL at around 157.24 or according to your acceptable risk.

Sell/Short 2: If the price breaks the support in the price range of 154.91 - 155.24, you may set a TP at approximately 154.24 and SL at around 156.91 or according to your acceptable risk.

Pivot point January 25, 2025 09:21 PM. GMT+7