The easing of expectations for the future tightening of the Bank of Japan's policy in the new year has allowed the bulls to push the price of the USD/JPY pair to gains that have reached the resistance level of 145.82. obviously, it is stabilizing around this level at the time of writing this analysis. Ahead of the release of US inflation figures, which will have a bearing on the future tightening of the US Federal Reserve's policy. Also, the USD/JPY has recovered from losses it suffered this week, which reached the support level of 143.42.
On the other hand, Japanese stocks outperformed other Asian markets, with the TOPIX index rising to its highest level in 34 years, as the weakness of the Japanese yen and the decline in bond yields fuelled bullish investor sentiment. Historically, the TOPIX index joined the rise of the Nikkei 225, which reached its highest levels since 1990 on Tuesday. Recently, the Nikkei continued to gain by 2% on Wednesday. The TOPIX index, which some funds prefer to track because it is more comprehensive, rose 1.3% to close at 2444.48 in Tokyo, reaching a level last seen in March 1990.
Meanwhile, the jump in the Nikkei and TOPIX indices suggests that investor optimism towards Japanese stocks remains strong this year after both indices rose by more than 25% in 2023 to achieve their best performance in a decade. Moreover, these actions were among the biggest winners in the world last year, as authorities pushed companies to improve shareholder value, decades-long deflation evaporated, and the weakness of the yen supported the profits of exporters.
According to some analysts, potential headwinds for Japanese stocks this year include expectations that the Bank of Japan will modify its ultra-loose monetary policy and the possibility of a rise in the value of the yen. "Both of these seem to have been delayed," after the strong earthquake on January 1st and weak economic data, as well as doubts about expectations of a rate cut from the Federal Reserve. In general, former investors in China and Taiwan may also be turning to Japan, where the focus remains on geopolitical tensions, regulatory uncertainties, and concerns about the economic outlook in China. Moreover, the Taiwanese elections are scheduled for January 13th, and investors are looking at how the vote will affect cross-strait relations.
On another level, the market's focus today, when the US government will issue its latest monthly update on consumer inflation. Consequently, the slowdown there since its peak in the summer of 2022 has raised hopes that the Federal Reserve may cut US interest rates sharply this year. This, in turn, led to a decline in Treasury yields in the bond market and a rise in stock prices towards record levels.
Economists expect today's report to show that prices paid by US consumers were 3.2% higher in December than a year earlier, according to FactSet. Furthermore, this would be a slight acceleration from the inflation rate of 3.1% in November. Moreover, after ignoring the effects of food and fuel prices, which can change rapidly from month to month, economists believe that underlying inflation trends are likely to continue to slow.
USD/JPY Technical Analysis and Expectations Today:
The USD/JPY currency pair is still following the path of a recently formed upward channel, especially with the start of trading in the new year 2024. Technically, breaking the 146.50 resistance will confirm the return of bulls’ control over the trend. Therefore, the currency pair may find momentum if today’s US inflation numbers come in stronger than all expectations. Moreover, the upward rebound may stop if the numbers are weaker than expectations. The support level of 143.70 will remain the most important for abandoning the current ascending channel.
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