On Monday, a closely watched Japanese survey showed that business sentiment among large manufacturing firms rose to its highest level in four years in the three months ending December. In the BoJ's Tankan survey, the large manufacturing business conditions index climbed to +15 for December, improving for the third consecutive quarter and reaching its highest level since late 2021. The large non-manufacturing business conditions index stood at +34, remaining at elevated levels. This indicates that despite external uncertainties, Japanese companies overall remain resilient and can withstand shocks such as potential U.S. tariffs to some extent. The survey also revealed that large firms expect capital expenditure for the current fiscal year to grow by 12.6%, slightly above market expectations. Price increase pressures are being passed downstream against a backdrop of relatively stable demand. Companies' inflation expectations for the next one, three, and five years have all stabilized around 2.4%, gradually converging toward the BoJ's 2% target. These results have reinforced market expectations that the BoJ may raise rates at this week's policy meeting. Analysts generally believe that, barring major economic or financial shocks, the BoJ could continue its rate hike path, potentially raising the short-term policy rate from 0.5% to 0.75%. At the same time, the survey highlighted persistent uncertainties: firms anticipate business conditions may worsen over the next three months, with key concerns stemming from U.S. trade policies, weak domestic consumption, and labor shortages. According to employment-related figures, Japan's labor market is now at its tightest since the Asset Price Bubble Collapse period (the early 1990s). While this could constrain long-term growth, it also supports sustained wage increases—a crucial prerequisite for the BoJ to keep hiking rates.

In contrast, the U.S. manufacturing sector shows signs of slight cooling. The New York Fed's Empire State Manufacturing Survey for December indicated that after rebounding in the previous two months, manufacturing activity in New York state edged lower, with the general business conditions index turning negative from last month's one-year high. New orders remained broadly stable, but shipments declined and unfilled orders dropped significantly, while delivery times shortened—signs that demand momentum is moderating. Employment levels and average workweek continued to rise modestly. Although price indicators remain elevated, they fell for the second consecutive month, suggesting easing cost and selling price pressures. Notably, firms' confidence about the future strengthened, with expectations for future business conditions, new orders, and shipments all hitting year-to-date highs, and capital expenditure plans improved. In policy discussions, there remains divergence within the Federal Reserve on interpreting inflation. Fed Governor Stephen Miran argued that current above-target inflation does not accurately reflect present supply-demand dynamics; metrics like housing inflation exhibit significant lags, and some price increases stem from statistical or asset price factors rather than genuine inflationary pressure. He estimates that core inflation excluding these factors is around 2.3%, within a reasonable range around the target. Meanwhile, he warned that maintaining overly restrictive policies due to historical imbalances or statistical biases could unnecessarily harm employment. Based on this view, he advocated for a larger rate cut at the most recent meeting. By contrast, New York Fed President John Williams stated that recent Fed rate cuts have positioned monetary policy well to address future challenges. He believes that while the labor market is gradually cooling, upside inflation risks are easing, and tariff effects on prices are more likely to be one-off rather than persistently pushing up inflation. He expects inflation to gradually return to near the 2% target over the next two years, with unemployment rising in the short term but falling again in subsequent years amid moderate economic growth.

The daily chart suggests that Bollinger Bands are narrowing and flattening, with moving averages running sideways, indicating an imminent directional breakout. After breaking below the Bollinger Middle Band yesterday, short-term upward momentum appears weak. However, if prices can hold above 154, a retest of 158 or even 160 is likely. Following a death cross, the signal and MACD lines are pulling back toward the zero axis but remain some distance away, meaning the adjustment phase has not yet ended. RSI is at 47, reflecting strong market indecision. Resistance lies near the Bollinger Upper Band and round-number levels at 157.4 and 160. Shifting to the 4H chart, Bollinger Bands are expanding downward, and moving averages are diverging lower, sustaining the short-term bearish trend. After forming a death cross, the signal and MACD lines have moved below the zero axis, and the price is oscillating lower along the EMA12—a sign of strong downside momentum. RSI stands at 37, showing prevailing selling pressure. However, price lingering near the EMA200 suggests a possible rebound. In the near term, it is better to sell first, then buy in.

Trading direction: Buy

Entry price: 154.3

Target price: 158.8

Stop loss: 152.5

Support: 154.7/153.2/150

Resistance: 157/158.8/160