Japan’s wage growth hits a new high.

The Japanese yen strengthened slightly as strong economic data boosted expectations for a potential interest rate hike by the Bank of Japan. Notably, wage growth reached its highest level in 30 years. However, trade uncertainties, particularly the U.S. tariff hikes on imports, could severely impact Japan’s export-driven economy. Additionally, the depreciation of the U.S. dollar—following its prior strengthening—has led investors to closely monitor economic indicators, particularly U.S. employment growth, to gauge potential interest rate cuts by the Federal Reserve.

Japan’s manufacturing PMI declined slightly to 48.7 in January from 49.6 in December, which was the highest level in three months. However, this marks the seventh consecutive month of contraction in factory activity, driven by the sharpest decline in output in ten months. Meanwhile, new orders continued to decrease at the fastest pace in six months, primarily due to weak foreign sales, despite an improving medium-term outlook. On the other hand, employment increased for the second consecutive month, while production costs fell again due to raw material prices dropping at their fastest rate in nine months.

Japan’s industrial production increased by 0.3% month-over-month in December, in line with market expectations, rebounding from a 2.2% decline in the previous month. Preliminary data showed that key contributors to this growth included manufacturing machinery, which surged by 2.9%, while the electronic components and devices industry rebounded by 2.1%. However, on a year-over-year basis, industrial production fell by 1.1%, easing from a 2.7% decline in November, marking the second consecutive month of contraction.

Japan’s services PMI rose to 53.0 in January, indicating expansion for the third consecutive month and the strongest growth rate since September. New orders grew steadily, accelerating for the second straight month at the fastest pace in six months. Additionally, foreign sales expanded for the first time in four months at the strongest rate since August of last year. Employment in the services sector continued to rise, marking 16 consecutive months of job creation. In terms of prices, average input costs increased at the fastest rate since August due to higher wages, fuel prices, and raw material costs. As a result, output price inflation accelerated to an eight-month high. Lastly, business confidence improved slightly, driven by new contracts, expansion plans, and increasing employment.

Japan’s 10-year government bond yield surged to 1.29%, the highest level in 14 years, as strong wage growth and a robust services sector reinforced investor expectations of tighter monetary policy by the Bank of Japan. Data showed that wages in Japan increased for the second consecutive month, driven by higher winter bonuses. Additionally, the Bank of Japan raised interest rates in January and signaled its readiness to hike rates further if economic conditions align with its forecasts.

Techical analysis data (5H)

Resistance: 152.47, 152.69, 153.05

Source: Investing.com

Buy/Long 1: If the price touches support in the price range of 151.53 - 151.89 but cannot break the support at 151.89, you may set a TP at approximately 152.69 and SL at around 151.31 or according to your acceptable risk.

Buy/Long 2: If the price breaks the resistance in the price range of 152.47 - 152.69, you may set a TP at approximately 153.05 and SL at around 151.53 or according to your acceptable risk.

Sell/Short 1: If the price touches resistance in the price range of 152.47 - 152.69 but cannot break the resistance at 152.47, you may set a TP at approximately 151.53 and SL at around 153.05 or according to your acceptable risk.

Sell/Short 2: If the price breaks the support in the price range of 151.53 - 151.89, you may set a TP at approximately 151.31 and SL at around 152.69 or according to your acceptable risk.

Pivot point February 5, 2025 10:28 PM. GMT+7