Japan's monetary policy may undergo changes soon.

The Japanese yen has been continuously depreciating in recent times, but after the announcement of the Consumer Price Index (CPI) in the United States, the yen has started to strengthen slightly, currently standing at 138 USD/JPY. The weakened yen has been a factor that benefits Japan's export profits, although it increases the prices of energy and other imports. However, when examining export figures, they have contracted compared to the previous year. Therefore, the yen's strength might be beneficial for Japan at the moment.

Kazuo Ueda, the Governor of the Bank of Japan (BOJ), stated that there is a significant amount of uncertainty in the global economy due to increasing inflation and rising interest rates. This uncertainty can affect the current monetary policy, even though Japan's inflation rate remains higher than the central bank's target. The BOJ's accommodative monetary policy has been a key driver of the yen's depreciation, contrasting with the tightening measures in the United States, Europe, and many other countries.

Furthermore, Japan's 10-year government bond yields reached their highest level in four months last Friday amid expectations that the Bank of Japan may scale back its accommodative monetary policy at the end of this month.

As of recent developments, the 10-year Japanese Government Bond (JGB) yield (JP10YTN=JBTC) reached 0.485%, which is the highest level since March 10. It represents an increase of 1 basis point (bp) from the previous period, where the yield was at 0.475%. Similarly, the 20-year JGB yield (JP20YTN=JBTC) rose by 3 bps to 1.120%, and the 30-year JGB yield (JP30YTN=JBTC) increased by 4 bps to 1.390%. Additionally, there are expectations of adjustments to the Yield Curve Control (YCC) policy.

Shinji Ebihara, a strategist at Barclays Securities Japan, mentioned that the market had anticipated the Bank of Japan's (BOJ) policy adjustments, leading to a rapid surge in the 10-year JGB yield since last Friday. The strong growth in Japan's monthly wage base, which rose by 1.8% year on year in May, provided significant impetus, marking the highest increase since February 2538 (Heisei 25).

The Bank of Japan is scheduled to hold a policy meeting on July 27-28, and investors are closely monitoring whether the BOJ will reduce its accommodative monetary policy. Meanwhile, Ryoji Abe, an economist at SMBC, stated that a substantial number of investors expect the BOJ to widen the range of movement for the Yield Curve Control (YCC) policy to +/- 0.25% at the next meeting.

Techical analysis data (5H)

Resistance: 138.98, 139.11, 139.30

Support: 138.65, 138.47, 138.33

Source: Investing.com

Pivot Points June July 18, 2023 10:23 AM GMT+7