USD/JPY Analysis (November 10, 2023)

Create at 4 weeks ago (Nov 10, 2023 10:38)

BOJ Governor Commits to Ultra-Loose Policy

During a parliamentary session on November 9, Kazuo Ueda, the Governor of the Bank of Japan (BoJ), has reaffirmed the central bank's commitment to maintaining its ultra-loose monetary policy, which includes negative interest rates and yield curve control, until there is increased confidence in achieving the 2% inflation target. He emphasized the importance of active price lifts and wage hikes by companies as crucial steps toward sustainably reaching the inflation target.

Ueda stated that the central bank would proceed carefully in exiting ultra-loose monetary policy to avoid causing significant volatility in the bond market. However, he cautioned that there was still some distance to cover before the BOJ could abandon its yield curve control and negative interest rate policy.

Regarding inflation, Ueda noted that Japan's underlying inflation, excluding temporary factors, was still slightly below 2%, and uncertainty remained about whether inflation would continue to rise as expected. He pointed out that wages would need to grow higher than 2% for inflation to sustainably hit the BOJ's target.

Ueda also discussed various risks, including the uncertainty surrounding the U.S. economy's potential soft landing and the fate of China's economy. When asked about the impact of exchange-rate moves on monetary policy, Ueda mentioned that the BOJ would analyze how currency rates could affect inflation and output, responding as needed.

In a separate development, the Summary of Opinions post October's meeting revealed positive anticipation about wage trends, forecasting an uptick in base pay negotiations next year, indicating proximity to the BOJ's price target achievement. Some members suggested tapering monetary easing and regarded yield control adjustments as groundwork for future policy normalization.

Meanwhile, inflation-adjusted real wages dropped by 2.4% in September, following a revised 2.8% fall the previous month. Although nominal pay growth in September slightly improved to 1.2%, major companies agreed to the highest average pay hikes in 30 years at 3.58%, breaking the trend of virtually flat wages since the early 1990s.

In September, Japan reported its largest current account surplus in 18 months, with the trade balance turning positive. However, concerns were raised about high energy costs and a weak yen impacting the country's economy, heavily reliant on fuel and raw material imports. The weakened yen has contributed to cost-of-living pressures by boosting the prices of imported goods.

Despite improvements in Japanese manufacturers' business confidence and a rise in the service-sector mood, the Reuters Tankan poll indicated a challenging economic outlook amid a patchy recovery. The survey also highlighted a tough quarter ahead, with manufacturers' mood expected to remain steady, while service-sector morale is anticipated to decline. Many firms expressed concerns about higher import costs and the deterioration of key markets like China.

In September, consumer spending in Japan declined for the seventh consecutive month, signaling a delayed recovery in household consumption. Analysts predict a contraction in the third quarter for Japan's economy, the third-largest globally. The fluctuation in spending was attributed to increased costs in areas like eating out, transportation, and automobile-related expenses, while essential items experienced decreased expenditure, influenced in part by rising prices.

The struggling Japanese currency, trading near a one-year low, has led traders to stay alert for potential intervention. The U.S. dollar gained against the Japanese yen after Federal Reserve Chair Jerome Powell's comments expressing a lack of confidence in current interest rates to combat inflation.

The dollar's rally was also influenced by a weak auction of 30-year Treasury bonds, causing higher yields. While some Fed officials maintain a more hawkish outlook, the market is uncertain about the dollar's future trajectory, considering factors like the expected slowdown in the U.S. economy and growth concerns in other regions.

According to the FedWatch Tool by the CME Group, traders in the fed funds futures market are currently estimating a 25% probability of an additional interest rate hike by January. This marks an increase from 19% earlier in the week but a decrease from the 28% probability observed a week ago. As a consequence, the USD/JPY currency pair may demonstrate a lack of clear direction in this timeframe. Expectations include the possibility of observing stability in the upper range. Nonetheless, there is a potential risk of the yen experiencing a modest reversal of its depreciation, influenced by factors related to Japan's monetary policy and investor speculation. This situation aligns with the ongoing trend of the US dollar strengthening in the medium term.

Data for Technical Analysis (5H) CFD USD/JPY

Resistance : 151.37, 151.40, 151.44

Support : 151.27, 151.24, 151.19

5H Outlook

USD/JPY Analysis Source:

Buy/Long 1 If the support at the price range 151.17 – 151.27 is touched, but the support at 151.27 cannot be broken, the TP may be set around 151.38 and the SL around 151.12, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 151.37 – 151.47, TP may be set around 151.57 and SL around 151.22, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 151.37 – 151.47 is touched, but the resistance at 151.37 cannot be broken, the TP may be set around 151.26 and the SL around 151.52, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 151.17 – 151.27, TP may be set around 151.05 and SL around 151.42, or up to the risk appetite.       

Pivot Points Nov 10, 2023 03:16AM GMT

Name S3 S2 S1 Pivot Points R1 R2 R3
Classic 151.13 151.19 151.26 151.32 151.38 151.44 151.51
Fibonacci 151.19 151.24 151.27 151.32 151.37 151.40 151.44
Camarilla 151.29 151.30 151.31 151.32 151.34 151.35 151.36
Woodie's 151.13 151.19 151.26 151.32 151.38 151.44 151.51
DeMark's - - 151.29 151.34 151.42 - -

Sources: Investing 1Investing 2

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