Recent financial market concerns over Japan’s economic outlook have intensified, particularly regarding the risk of a negative feedback loop driven by monetary policy lagging, rising inflation, and a weakening yen. According to Hiroyuki Seki, Head of Global Markets at Mitsubishi UFJ Financial Group, market expectations of a December rate hike by the Bank of Japan (BOJ) have risen to 90%. However, the more crucial factor is whether the central bank can signal a firm future policy trajectory. If expectations for tightening are not reinforced and the government increases fiscal expenditure amid inflationary pressures, the yen could depreciate further, raising import costs and sustaining inflationary pressures. Despite the narrowing interest rate differential between Japan and the US, the yen remains weak around 155 per U.S. dollar. Market concerns also stem from Prime Minister Sanae Takaichi’s renewed inflationary stance, which might constrain the BOJ’s tightening measures. Hiroyuki Seki emphasizes the need for Japan to escape a prolonged period of ultra-low real interest rates, with the BOJ implementing a steady normalization of monetary policy to avoid vicious cycles of depreciation and inflation resulting from insufficient tightening. He forecasts that if a December rate increase occurs as expected, subsequent hikes of 25 basis points approximately every six months could bring the terminal rate to 1.25% to 1.5% by mid-2027, with upside risks if inflation becomes more sticky. The BOJ previously estimated the nominal neutral interest rate to be between 1% and 2.5%. In the bond market, Mitsubishi UFJ suggests that after benchmark 10-year yields surpass 1.65%, there is room for re-entry. If yields exceed 2%, the pace of accumulation would accelerate. Currently, the risk exposure is low, and the portfolio remains well-positioned to adapt.

The Federal Reserve has entered a policy observation period following a distinctly hawkish rate cut driven by internal dissent. The Federal Open Market Committee (FOMC) unanimously voted 9-to-3 to cut interest rates by 25 basis points to a target range of 3.50%–3.75%, marking the third rate reduction since 2025. However, the dot plot indicates a markedly narrowed future easing outlook: the majority of policymakers project only one more rate cut in 2026, with a subsequent pause probable. This decision occurs amid persistent inflation above the target, slowing employment growth, an increase in the unemployment rate to 4.4%, and incomplete data due to a government shutdown. Additionally, tariff hikes have exerted further upward pressure on prices, causing inflation to rebound to 2.8% since the start of the year. While economic activity continues to show moderate expansion, outlook uncertainty remains. The latest projections suggest that the Fed anticipates economic growth reaching 2.3% in 2026, with inflation easing to approximately 2.4% by year-end and the unemployment rate holding steady at 4.4%. Post-meeting market reactions reflect interpretations of a "moderate rate cut with a dovish tone," with U.S. equities rising, the dollar weakening, and Treasury yields declining. The FOMC statement emphasizes that economic growth remains modest, labor market softening coincides with elevated inflation, and reaffirms its dual mandate to maximize employment and maintain a 2% inflation rate, indicating ongoing reliance on incoming data to guide future policy adjustments.

In the 1D timeframe, the Bollinger Bands are converging and narrowing, with SMAs leveling off, signaling a potential trend reversal. Yesterday's formation of a bearish engulfing pattern indicates short-term bearish momentum; however, as long as prices remain above 156, there is a high likelihood of re-challenging the 158 or 160 resistance levels. Following the MACD death cross, the MACD line and signal line are retracing towards the zero-axis, but still at some distance, suggesting that the correction phase is not yet complete. The RSI stands at 56, reflecting a relatively strong bullish market sentiment. Resistance levels are near the upper Bollinger Band and key psychological thresholds at 157.7 and 160. In the 1W timeframe, Bollinger Bands are expanding upward, with SMAs diverging, indicating an ongoing bullish trend. After the MACD formed a golden cross, the MACD line and signal line moved above the zero-axis, and EMA 12 is oscillating upwards, signaling strong upward momentum. The RSI is at 66, with market participants predominantly displaying buying bias. It is recommended to go long at the lows in the short term.

Trading Direction: Buy

Entry Price: 154.7

Target Price: 158.8

Stop Loss: 152.5

Support: 154.7, 153.2, 150

Resistance: 157, 158.8, 160