The Japanese economy has not shown significant improvement recently. 

The yen has appreciated slightly after Japan announced its inflation rate, which saw a minor increase even though energy costs have started to decline. However, inflation in Japan remains persistent, with the Consumer Price Index (CPI) rising by 3.3% in June, slightly lower than the expected 3.5%. This can be considered a positive trend, but the Core CPI, which excludes volatile food and energy prices, increased by 4.2% in June, nearing the highest level in 40 years. The Bank of Japan (BOJ) is closely monitoring the situation to consider future monetary policy.

The lack of a clear downward trend in inflation has led the BOJ to contemplate changes to the Yield Curve Control (YCC) mechanism. The central bank has signaled its intention to start adjusting the YCC soon, and this may potentially occur in 2024.

Edward Moya, an OANDA market analyst in New York, stated that the BOJ's expectations still focus on controlling yields to match current returns, despite the slight increase in inflation.

The government's financial support for electricity and energy imports has been a significant factor in controlling the high inflation rate in Japan. However, the persistently high inflation in food prices, which has been steadily increasing for several months, has pushed the overall inflation rate to its highest level in 40 years in early this year. The weakening yen has also contributed to higher import costs.

Looking at domestic factors, Japan's Manufacturing Purchasing Managers' Index (PMI) has decreased to 49.4, the lowest since March. This decline is attributed to reduced demand and shrinking employment growth. Additionally, the inflation rate for raw materials has reached its lowest level since February 2022, but manufacturers still face high production costs, leading to price pass-through to consumers and potentially reducing spending.

The Services PMI has also declined to 53.9 from the previous month's 54.0, showing the slowest business expansion recorded in the past six months. Hiring in the services sector has also decreased, indicating the impact of the country's sluggish economic growth. Moreover, there are weak signals of confidence in the economic outlook for the coming year.

Techical analysis data (5H)

Resistance: 140.89, 141.42, 141.73

Support: 140.04, 139.74, 139.20

Source: Investing.com