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Inflation Permeates Rental Sector, BoJ Normalization Path Begins to Emerge
Summary:
Tokyo apartment rents are rising at the fastest pace in three decades, providing the Bank of Japan (BoJ) with the latest signal that the inflation trend in Japan is deepening across the economic domain.
PENDING
145.180
ENTRY
142.400
TGT
146.800
SL
143.693 -0.307 -0.21%
--
Point
PENDING
142.400
TGT
CLOSING
145.180
ENTRY
146.800
SL
Fundamentals
During the Asian session on Thursday, USDJPY plunged significantly, breaking below the 144.00 level, due to the widespread selling of the US dollar and the upward pressure on the asset from rising inflation in Japan.
Data from Japan's Ministry of Internal Affairs and Communications shows that rents in Japan's capital region rose by 1.3% year-on-year from April to May this year, the largest increase since 1994. Although this increase may seem modest compared to Tokyo's core inflation rate of 3.6% and the global surge in housing rents, it signifies that the inflationary cycle has finally penetrated Japan's rental market. The widespread increase in rents and prices provides the BoJ with grounds for further interest rate hikes.
Market observers note that the rise in rents confirms the so-called normalization shift by the central bank, which is indeed one of the signs of a rise in underlying prices and may drive the normalization process of monetary policy. Previously, in its semiannual financial system report, the BoJ had listed the real estate market as a key issue requiring close monitoring.
According to the summary of opinions from the BoJ's June meeting, the committee members discussed the issue of inflation rising faster than expected, while they continued to believe it was necessary to remain vigilant about the high uncertainty related to US tariffs.
One of the nine committee members stated, "Although prices are slightly higher than expected, given the downside risks to economic activity brought by US tariff policies and the situation in the Middle East, it is appropriate for the central bank to maintain its current stance on monetary policy implementation." Others also mentioned that the inflation rate was higher than expected.
Although the summary indicates that the urgency for interest rate hikes is not significant at present, the members' general view that inflation is higher than expected increases the likelihood of the BoJ raising the benchmark interest rate when the uncertainty of tariff impacts begins to dissipate.
Data released last Friday showed that Japan's main price index hit a two-year high, and the BoJ's inflation outlook suggests that the bank may raise its inflation forecast in the quarterly economic report at its July meeting.
Technical Analysis
USDJPY continued to be sold off on Thursday, but the intraday trend remained upward due to the oversold indicators. As long as the support level at 142.10 holds, USDJPY is expected to rise further, albeit modestly. On the upside, a break above 148.64 would restart the rally from 139.87.
However, given the relatively favorable fundamentals for the yen and the head-and-shoulders top pattern still in place on the daily chart, we anticipate that after a brief rebound, the bears will continue to dominate.
Trade Recommendations
Trade Direction: Sell
Entry Price: 145.18
Target Price: 142.40
Stop Loss: 146.80
Valid Until: July 11, 2025 23:55:00
Support: 143.75/143.36/142.79
Resistance Levels: 144.51/144.90/145.46
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Master of Economics, 8 years in the financial industry, CFA holder, joined HSBC (Hong Kong) Bank in 2013 after graduating from the University of California, USA in the Investment Research and Markets Department. With years of financial market experience and trading experience, having provided excellent investment advice to many brokerages, entity derivatives importers and clients in Greater China.
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