The Bank of Japan may raise interest rates this year.

Last week, there was a statement from the Governor of the Bank of Japan (BoJ), Haruhiko Kuroda, indicating that the BOJ may consider raising interest rates again by the end of this year if there is sufficient data. Kuroda also mentioned that the BOJ's target inflation rate remains at 2%, prompting the central bank to contemplate a more hawkish policy stance, including the continuous growth in wages, which is still in a good range.

However, some analysts argued that Kuroda's statement did not appear to strongly commit to implementing this policy, causing the yen to depreciate further. This happened amidst the divergence in interest rates with the United States, as the Federal Reserve adopted a more hawkish policy while the BOJ continues to maintain its easing policy. Additionally, the latest data showed that Japanese producer prices increased at their slowest pace in 29 months and remained flat for the eighth consecutive month in August.

Japan's economy grew by 4.8% year-on-year (YoY) and 1.2% quarter-on-quarter (QoQ) in the second quarter, slightly below market expectations of 1.3%. This marks two consecutive quarters of growth after a 0.9% expansion in the first quarter. The strong export performance played a significant role in this growth and was considered the best export figure in two years, while imports declined for the third consecutive quarter. However, if imports continue to decline in the long term, it could lead to economic slowdown in the country.

Japan's foreign exchange reserves decreased slightly to $1.251 trillion in the past month. Official data reveals that Japan spent up to 6.35 trillion yen on foreign exchange interventions to support the yen's value in the past year. However, during the first half of this year, the Japanese government refrained from intervening in the currency markets, and the yen's depreciation has led to expectations of possible future interventions.

The yield on Japan's 10-year government bonds surged rapidly to 0.7%, reaching its highest point in almost a decade. Despite some supportive news that pushed yields higher, they still remain significantly lower than those in the United States, making U.S. assets more attractive for investment. This is one of the reasons why the United States continues to be a preferred destination for investment, leading to significant outflows of funds from Japan.

Techical analysis data (5H)

Resistance: 147.39, 147.51, 147.60

Support: 147.17, 147.09, 146.96

Source: Investing.com