Last week, Japan's macroeconomic data and policy developments exhibited complex but generally normalized trends: despite wage increases being insufficient to offset inflationary pressures, economic growth experienced a brief slowdown, and the government intensified investment incentives, with the central bank approaching a neutral interest rate zone. Market consensus anticipates that the Bank of Japan will raise interest rates at the December meeting and continue to tighten monetary policy gradually. Recent statistics indicate that in October, real wages declined by 0.7% year-on-year, even though nominal wages rose by 2.6%. However, this growth was still insufficient to offset a 3.4% increase in consumer prices, leading to a tenth consecutive month of decreased real purchasing power. Regular salaries, overtime pay, and special allowances all saw increases, yet persistent inflationary pressures continued to erode real income. Additionally, despite a tightening labor market and corporate plans to implement further wage hikes in spring 2026, current wage growth remains inadequate to fully counteract rising costs. Economically, Japan’s Q3 GDP was revised downward from an initial estimate of 1.8% to a contraction of 2.3% annually, marking the fastest decline in two years. Capital expenditure was adjusted from growth to decline; private consumption showed slight improvement, but overall demand remains subdued. Nonetheless, economists generally view this contraction as temporary, expecting a return to growth in the following quarter driven by moderate consumption rebound. On the external front, since September, the U.S. has implemented a 15% tariff on imports from Japan, creating additional pressure on exports. Policy-wise, wage and inflation trends remain focal points for market attention. A Reuters survey projects that Japan’s core CPI for November will increase by 3.0% year-on-year, remaining above the central bank’s 2% target for three and a half consecutive years, with food inflation easing somewhat amid rising energy costs. Due to sustained high prices and negative real borrowing costs, sources widely expect the Bank of Japan to raise short-term interest rates from 0.5% to 0.75% at its December 18–19 meeting. Post-meeting, the bank is anticipated to commit to future policy adjustments responsive to economic reactions to previous rate hikes, opting not to rely on an as-yet uncertain neutral interest rate as a clear policy benchmark.

The U.S. dollar struggles to attract substantive buying interest as market sentiment remains dovish ahead of the Federal Reserve, with the dollar lingering near the two-month lows reached last Thursday. Despite the Fed's cautious stance on further rate cuts, traders anticipate two more easing cycles next year. Meanwhile, U.S. President Trump announced a narrowed pool of candidates vying to succeed Jerome Powell as Fed Chair, expressing hope that the nominee will pursue a rate-cutting policy. The prospect of a Trump-led Fed Chair generating fears among dollar bulls has limited the USDJPY currency pair's momentum. Traders also appear cautious ahead of key U.S. macroeconomic data scheduled for this week, including Tuesday’s October non-farm payroll report and Thursday’s latest inflation figures. At the same time, divergent economic outlooks for Japan and the U.S. may continue to underpin the lower-yielding yen.

In the 1D timeframe, the Bollinger Bands are converging and tightening, with SMAs leveling off, indicating a potential shift in trend. Yesterday’s candlestick pattern formed a Bearish Engulfing, suggesting short-term bearish momentum; however, if prices sustain above the 155 level, there is a high probability of testing resistance at 158 or 160. Following a MACD death cross, the MACD line and signal line are retracing toward the zero-axis, but still remain somewhat apart, indicating that the consolidation phase has not been conclusively completed. The RSI reading is at 47, reflecting a predominantly cautious market sentiment. Resistance levels are identified near the upper Bollinger Band and psychological key levels at 157.4 and 160. Market offers clarity primarily around these levels. In the 4H timeframe, Bollinger Bands are diverging downward, with SMAs trending lower, confirming the prevailing downside bias. Following a MACD death cross, the MACD line and signal line dipped below zero-axis, and prices are oscillating along the EMA12, displaying a strong bearish momentum. RSI stands at 37, indicating that traders are primarily selling. Nonetheless, price action around the EMA200 suggests potential for a rebound. In the short term, it is recommended to go short before going long.

Trading Direction: Buy

Entry Price: 155

Target Price: 158.8

Stop Loss: 152.5

Support: 154.7, 153.2, 150

Resistance: 157, 158.8, 160