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Economic Weakness in Japan: Will Authorities Intervene to Support the Yen?

By Samir Al Khoury,

Japan’s year-on-year headline CPI came in at 2.5% today, lower than the previous reading of 2.7%. The core consumer price index, which excludes food, on an annual basis in Japan recorded 2.2%, which is in line with expectations but lower than the previous reading of 2.6%.

Recent Japanese economic data indicate that the Japanese economy is experiencing weakness, as shown by the following points:

The GDP index declined on an annual basis in the first quarter of this year, recording a contraction of 2.0%, which is lower than expectations of -1.2% and the previous reading of 0.0%.

The trade balance declined, recording a deficit of 462.5 billion yen, which is worse than expectations of 339.5 billion yen and the previous reading of -366.5 billion yen. Both the export and import indices recorded growth of 8.3%, which is below expectations.

These economic indicators, which fell short of expectations, suggest increasing bets that the Bank of Japan will be forced to maintain interest rates at their current levels of 0% and 0.1%.

The price of the dollar against the Japanese yen reached 160.20 on Monday, April 29, 2024, the highest level since 1990. Currently, the dollar-yen exchange rate is hovering near the 157 level.

Although the 10-year Japanese government bond yield rose to 1.027% yesterday, its highest level since 2012, due to the Bank of Japan reducing its purchases of government bonds this month, there remains a significant gap between Japanese and American bond yields. For example, the 10-year Japanese government bond yield is currently 1.00%, while the US Treasury bond yield is 4.47%, creating a gap of approximately 3.47%, which encourages interest trading or carry trade, continuing to pressure the yen.

Additionally, the strength and resilience of the US economy and the reduced market expectations for an imminent US interest rate cut support the dollar against all major currencies.

But will we see a new intervention by the Japanese authorities to support the local currency? And will this intervention be sufficient?

It seems that technical indicators may support the price of the US dollar against the yen in the near future for several reasons:

1.The alignment of the 20-, 50-, and 200-day moving averages and their upward trend, with the 20-day average exceeding the 50-day average, and the 50-day average exceeding the 200-day average.

2.The Relative Strength Index (RSI), currently at 61 points, indicates upward momentum for the USD/JPY pair.

3.The MACD indicator, with the blue line exceeding the orange signal line and being in the positive zone, gives positive momentum to the USD/JPY pair.

Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.

Taurex is the trading name of Zenfinex Global Limited, Stochastic Africa SL Ltd, Zenfinex Global LLC, and Zenfinex Limited.

Zenfinex Global Limited is registered in the Republic of Seychelles with registration number: 8428731-1 and is regulated by the Financial Services Authority of Seychelles (license number SD092). Its registered office address is F20, 1st Floor, Eden Plaza, Eden Island, Seychelles.

Stochastic Africa (SL) Limited is a company registered in Sierra Leone with Company Number: SL270319STOCH05271 and is licensed by the Bank of Sierra Leone under license number BSL/SAL/2023 and with the registered office at 148D Wilkinson Road, Freetown, Sierra Leone.

Zenfinex Global LLC is a company registered with the Financial Services Authority in Saint Vincent and the Grenadines under registered number 138 LLC 2019. Its registered office is Hinds Building, Kingstown, Saint Vincent, and the Grenadines.

Zenfinex Limited is a company registered in England and Wales under registered number: 11077380. Authorised and regulated by the Financial Conduct Authority under firm reference number 816055. Its registered office is 4th Floor, 4 Eastcheap, London, EC3M 1AE, United Kingdom.

*All trading involves risk.

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