empty
10.01.2025 12:38 AM
The Bank of Japan Edges Closer to Another Rate Hike, but the Yen Remains Unready for Strengthening

Macroeconomic data from Japan presents a mixed picture, leaving the outlook for the yen uncertain.

Consumer sentiment deteriorated in December, with data from the Cabinet Office showing a decline in the index from 36.4 to 36.2. Additionally, the output gap in Japan, which measures the difference between actual and potential production, has remained negative for the 18th consecutive quarter. This indicates that actual output is below full capacity, suggesting insufficient demand. These disappointing figures imply that the Bank of Japan may adopt a wait-and-see approach at its upcoming meeting on January 24, potentially delaying a rate hike. Such a decision would likely be negative for the yen, resulting in further weakening of the currency.

At the same time, base wages rose by 2.7% in November, with nominal wages increasing by 3% year-on-year, marking the highest annual growth in 32 years. However, due to high inflation, real incomes fell by 0.3%, with inflation outpacing wage growth for the fourth consecutive month. These figures call for a rate hike. It's worth noting that the previous rate hike occurred after members of Japan's largest trade union federation, Rengo, secured the highest wage increase in three decades. This factor is considered perhaps the most critical, after inflation, in the debate over rate hikes. Rengo will release its next report on March 14, aiming for a wage increase of at least 5%, a goal the government is actively resisting. Union positions are strong—the labor share of income, expressed as the ratio of total wages to GDP, has been steadily declining since 2021.

This image is no longer relevant

Will the BOJ wait for Rengo's report, or will it act sooner? If the Bank chooses to wait, the January 24 meeting is likely to conclude without any significant decisions, which could lead to a continued weakening of the yen. Conversely, if the BOJ decides to raise rates ahead of the report, the yen may strengthen considerably.

Opinions on this issue are divided, and the outcome remains uncertain. In December, BOJ Governor Ueda indicated that trends in wage negotiations could become apparent even before Rengo's official tally in March, suggesting that the Bank might act sooner. But how soon could that be—January or early March? Since the yen has not yet shown signs of breaking its negative trend, investors remain skeptical that the balance of opinion is shifting toward a decision in January. The release of December's Consumer Price Index (CPI), scheduled just hours before the January 24 meeting, could play a decisive role in this scenario. However, with two weeks remaining before this release and no major news expected in the interim, uncertainty persists.

For traders focusing on the yen, the most straightforward strategy is to practice patience and trade within a sideways range. Any hint or statement from the government, the BOJ, or labor unions will be closely examined. Additionally, a significant event in January is Donald Trump's inauguration, which could offer insights into his new economic and trade policies and whether they will be as inflationary as the markets currently anticipate.

Positioning on the yen remains neutral; investors are uncertain about its direction and have reduced their activity while waiting for new data. The calculated price has risen above the long-term average, indicating potential for a move upward.

This image is no longer relevant

The dollar exhibits a clear bullish sentiment, allowing the USD/JPY pair to reach a six-month high. However, growth remains cautious due to conflicting macroeconomic data that does not provide a clear picture. We anticipate that trading will continue within a sideways range, with potential minor movements towards the 161.96 high.

Kuvat Raharjo,
Analytical expert of InstaForex
© 2007-2025
Summary
Urgency
Analytic
Evgeny Klimov
Start trade
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

The Market Has Made It Clear

The economy remains strong, and U.S. trade deals with other countries are bringing clarity. What could be better for the S&P 500? Perhaps a fireworks display of corporate earnings that

Marek Petkovich 08:57 2025-07-24 UTC+2

What to Pay Attention to on July 24? A Breakdown of Fundamental Events for Beginners

Several macroeconomic reports are scheduled for release on Thursday, but they will all be similar in nature. Business activity indices for the services and manufacturing sectors for July will

Paolo Greco 07:12 2025-07-24 UTC+2

GBP/USD Overview – July 24. Trump's Tariffs: No One Will Be Spared

The GBP/USD currency pair also continued its upward movement on Wednesday, showing no reaction to the signing of a trade agreement with Japan. As we can see, even a form

Paolo Greco 04:02 2025-07-24 UTC+2

EUR/USD Overview – July 24. The Fourth Lucky One!

The EUR/USD currency pair continued its upward movement on Wednesday, and this time even the signing of yet another trade agreement couldn't save the dollar... So, Donald Trump signed

Paolo Greco 04:02 2025-07-24 UTC+2

The Trade Deal and Mike Lee's Lie

In my previous article, I asked: how is it possible that in a country which sees itself as a world leader in almost every area, the president can openly insult

Chin Zhao 00:53 2025-07-24 UTC+2

Total Fed Audits as a Tool to Pressure Powell

The Federal Reserve requires total control and auditing — this was stated by U.S. Treasury Secretary Scott Bessent twice this week: on Monday and Tuesday. According to Bessent, the U.S

Chin Zhao 00:53 2025-07-24 UTC+2

EUR/USD. ECB July Meeting: A Preview

On Thursday, July 24, the European Central Bank will hold its July meeting in Frankfurt am Main. The central bank is almost certain to maintain all monetary policy parameters unchanged

Irina Manzenko 00:53 2025-07-24 UTC+2

The Dollar Hits a Wall of Resistance

Plan A: reach a tariff agreement with the U.S. at 10% or less by August 1. Plan B: activate the anti-coercion mechanism and impose import duties on the U.S. totaling

Marek Petkovich 00:53 2025-07-24 UTC+2

USD/JPY – Analysis and Forecast

The Japanese yen halted its intraday decline after Prime Minister Shigeru Ishiba downplayed the significance of recent media reports suggesting his resignation. News from Japan and the United States continues

Irina Yanina 13:23 2025-07-23 UTC+2

XAU/USD – Price Analysis and Forecast

News from the United States and Japan is significantly impacting the price dynamics of the precious metal. President Donald Trump announced the conclusion of a major trade deal with Japan

Irina Yanina 13:18 2025-07-23 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.