The Bank of Japan is likely to continue raising interest rates.

The Japanese yen has stabilized after a previous decline, pressured by the rapid strengthening of the U.S. dollar following the latest U.S. tariff measures. President Donald Trump signed an executive order imposing a 25% tariff on steel and aluminum imports, raising concerns about an ongoing global trade war and potential inflationary pressures. This could influence the Federal Reserve’s decision on further interest rate cuts. Meanwhile, investors anticipate that the Bank of Japan will continue raising interest rates this year due to higher-than-expected household spending.

Japan's leading economic index, which measures economic trends for the upcoming months based on data such as job offers and consumer confidence, rose to 108.9 in December. This increase was driven by a slight decline in the unemployment rate, along with rising employment figures. Additionally, household spending increased for the first time in five months, indicating a slight recovery in consumer spending power.

Japan's composite economic index, which includes data such as factory output, employment, and retail sales, rose to 116.8 in December from 115.4 in the previous month. The latest data indicates that Japan’s economy continues to recover, albeit moderately, mainly supported by growing employment and steadily rising wages. However, cost pressures remain due to ongoing imports. The overall economic risks persist, particularly from high interest rates in the U.S. and Europe, which have raised import costs.

Household spending grew by 2.7% year-on-year in December, marking the first increase in five months. This growth was driven by winter bonuses from companies, leading to higher spending on clothing and footwear, which rose by 4.1%. Meanwhile, spending on housing continued to rise. Furthermore, continuous wage increases have positively impacted household purchasing power.

Naoki Tamura, an executive director of the Bank of Japan (BoJ), stated that interest rates should be raised to 1% or higher in the second half of 2025. He emphasized that higher interest rates are necessary to mitigate excessive inflation risks and support the yen’s appreciation. Although the BoJ has raised interest rates to 0.75% from 0.5%, financial conditions remain accommodative as real interest rates remain negative.

Japan’s 10-year government bond yield has surpassed 1.3%, marking a 14-year high. This surge is mainly driven by investor expectations that the BoJ will continue raising interest rates. There is also speculation that rates could be raised to 1%. Investors are closely watching Japan’s upcoming GDP and inflation data for deeper insights into future interest rate trends. Additionally, the U.S. inflation announcement this week could strengthen the U.S. dollar again amid concerns over import tariffs.

Techical analysis data (5H)

Resistance: 152.56, 152.81, 153.12

Source: Investing.com

Buy/Long 1: If the price touches support in the price range of 151.69 - 152 but cannot break the support at 152, you may set a TP at approximately 152.81 and SL at around 151.44 or according to your acceptable risk.

Buy/Long 2: If the price breaks the resistance in the price range of 152.56 - 152.81, you may set a TP at approximately 153.12 and SL at around 151.69 or according to your acceptable risk.

Sell/Short 1: If the price touches resistance in the price range of 152.56 - 152.81 but cannot break the resistance at 152.56, you may set a TP at approximately 151.69 and SL at around 153.12 or according to your acceptable risk.

Sell/Short 2: If the price breaks the support in the price range of 151.69 - 152, you may set a TP at approximately 151.44 and SL at around 152.81 or according to your acceptable risk.

Pivot point February 11, 2025 11:10 PM. GMT+7