The USD/JPY currency pair had a new bearish trading week in terms of performance, as it moved towards the 138.05 support level, which is an important support area in the path of the currency pair. It recorded historical records, followed by a Japanese intervention to prevent further collapse. This performance is on an important date this week, as the US markets will return to normal work after a long holiday, in addition to the markets anticipation of the important US job numbers. The US dollar, despite the recent sell-off, still has the strengths for a strong bullish rebound against all the other major currencies, as the stronger safe haven and the US Federal Reserve's hawkish policy provide it with more impetus.
In contrast, Tokyo's inflation rate exceeded expectations to record its fastest rate since 1982, an acceleration that indicates that price growth nationwide will also accelerate in November after months of a weak yen and higher energy costs. Japan's consumer prices excluding fresh food rose 3.6% in the capital, Tokyo, in November. The faster pace was driven by further gains in the price of processed food, according to the Ministry of Internal Affairs on Friday. The reading was the highest since April 1982 and stronger than analyst expectations of 3.5%.
Overall, the continued acceleration in core inflation challenges Bank of Japan Governor Haruhiko Kuroda's view that current cost-push inflation is only temporary and that continued stimulus is required to ensure sustained price growth. With gains in energy costs likely to roll back as massive government support takes effect in the coming months, economists largely agree with Kuroda that inflation in Japan will decline, although opinions differ on the extent. This means that the Bank of Japan is likely to stick to ultra-low interest rates for the remainder of Kuroda's term. Market speculation is largely focused on what will happen after the portfolios leave in April.
Tokyo figures showed that processed food prices rose 6.7% in November, contributing about 1.4 percentage points to overall inflation and outpacing the energy impact. Much of that food, including raw materials, is imported, and thus is directly affected by the weak yen. About 833 food items including dairy saw price increases in November, according to a survey by the Teikoku Data Bank. The report also expected Japan to experience another wave of price increases in February or March of next year, with the costs of another 2,000 items expected to rise.
Real wages have fallen since April, adding to factors affecting consumers' purchasing power and contributing to the Bank of Japan's concerns that an early rise in interest rates could upset the economy. To mitigate the impact of rising prices on consumption, Japanese Prime Minister Fumio Kishida put in place an economic stimulus package last month, funded in part by an additional budget of 29.1 trillion yen ($210 billion).
USD/JPY Forecast
- In the near term and according to the performance on the hourly chart, it appears that the USD/JPY is trading within the formation of a sharp descending channel.
- This indicates a strong short-term bearish momentum in the market sentiment.
- Therefore, the bears will look to extend the current declines towards 138.06 or lower to the 137.70 support.
- On the other hand, the bulls will target short-term profits at around 138.686 or higher at the 139.032 resistance.
In the long term and according to the performance on the daily chart, it appears that the USD/JPY is trading within the formation of a sharp descending channel. This indicates a strong long-term bearish bias in market sentiment. Therefore, the bears will target long-term profits at around 136.28 or lower at the 134.31 support. On the other hand, the bulls - the bulls - will target potential rebound profits at around 140.23 or higher at the 142.21 resistance.
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