The Japanese yen has weakened since the beginning of trading this week. More disappointing data weighed on the world's third-largest economy and its outlook heading into 2023. Tokyo has been under a lot of pressure lately, with a wide range of metrics pointing to significant weakness in Japan.
Will next year lead to a recession?
As for the performance of the USD/JPY exchange rate, it bounced upwards towards the 134.40 resistance level, before settling around the 134.00 level at the time of writing the analysis, waiting for anything new.
On the economic side, according to the Ministry of Economy, Trade and Industry (METI), Japanese industrial production fell -0.1% on a monthly basis in November. While this marked the third consecutive monthly decline, it was a marked improvement from -3.2% in October. The headline was also better than market estimates of -0.3%.
The data showed that the decline in industrial production was led by general-purpose machinery (-11.3%), general-purpose machinery and business (-7.9%), capital goods (-6.8%), and production machinery (-5.7%). and investment goods (-5.5%) and capital goods from transportation equipment (-5%). On a yearly basis, industrial output fell by 1.3%. Building orders fell 9.7% year-on-year last month, down from a 7.9% increase in October. It was the first drop since March, when building orders accounted for more than 21%.
Japanese housing starts also fell 1.4% year over year in November, below market expectations of 1.5%. The country's retail sales fell 1.1% in November, while the unemployment rate fell to 2.5%. And last week, it was reported that the annual inflation rate rose to a 41-year high of 3.8% in November.
All of these factors have led to a growing number of economists starting to slump in 2023.
“We think the Japanese economy will enter a recession sometime next year,” said Marcel Thelliant, chief Japanese economist at Capital Economics, in an interview with CNBC, adding that the downturn “will be mostly driven by lower exports and also by becoming more cautious, which is what you usually see when exports start to decline.”
Forecasts of the US dollar against the Japanese yen today:
- Overall, the Japanese Yen has been one of the worst performing currencies this year, dropping more than 16% against the US dollar.
- On the daily chart below, the price of the USD/JPY currency pair formed an upward channel through which it tries to change the general outlook that dominated the performance after the sudden tightening of the Central Bank of Japan.
- For the bulls to have more control over the trend, it is necessary to move towards the resistance levels at 135.40 and 137.00, respectively.
On the other hand, if the currency pair moves below the support 133.20, the bears may take control again. In general, I still prefer to buy the currency pair from every downward level. Today the number of US jobless claims will be released.
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