Surging energy prices have intensified concerns over economic growth and inflation, potentially complicating the BoJ's rate outlook. Governor Ueda warned that escalating tensions in the Middle East could significantly impact Japan's economy, implying that policy rates may remain unchanged for an extended period. In Japan, the services sector remains the main driver of economic expansion. In February, Japanese service activity grew at its fastest pace in nearly two years. Private surveys indicated that improved demand and increased new business notably boosted corporate activity. The final S&P Global Japan Services PMI rose slightly from 53.7 in January to 53.8 in February, marking the eleventh consecutive month above the expansion-contraction threshold and matching May 2024 levels—demonstrating solid momentum. Growth was mainly driven by domestic demand, with the new business index climbing to a near one-year high, while overseas demand recovered only modestly. S&P Global Market Intelligence noted that sales growth reached its fastest pace in nearly two years. Employment continued to expand but slowed to a three-month low, with some firms citing rising employee turnover and recruitment difficulties. Cost pressures intensified, as input prices rose noticeably, prompting service firms to raise selling prices at the fastest pace since 2014. Supported by improvements in both services and manufacturing, Japan’s Composite PMI climbed to 53.9, the highest overall expansion rate since May 2023. On monetary policy, the BoJ faces a difficult balance between recovery and risk. Ueda stated that as long as the economy and price trends align with the central bank’s median quarterly forecast, it will continue raising policy rates. But he also cautioned that an escalation of the Middle East conflict could pose significant risks to the global economy, including Japan, through higher energy prices and financial market volatility. Rising crude oil prices would worsen Japan's terms of trade, suppress growth, and create complex effects on underlying inflation: in the short term, they may dampen demand, but if sustained, they could push up medium- to long-term inflation expectations. Besides, the BoJ raised rates to 0.75% in December last year, the highest level in 30 years, signaling the end of its long-standing ultra-loose policy. However, amid renewed market volatility triggered by the Middle East situation, the likelihood of a near-term pause in rate hikes has increased. Ueda also pointed out that if the BoJ raises rates too slowly, long-term rates could rise excessively, which markets might interpret as a sign of increasing inflationary risks.

In the United States, recent data show that economic activity remains resilient. In February, U.S. private-sector employment saw its largest increase in seven months. According to the ADP National Employment Report, private employers added 63,000 jobs, exceeding market expectations. Job gains were concentrated in education and healthcare, while manufacturing employment edged down. Wage inflation remained stable, with average annual pay for workers holding steady at 4.5%. In addition, the services sector also performed strongly. According to the ISM data, the U.S. non-manufacturing PMI jumped from 53.8 to 56.1 in February, reaching a three-and-a-half-year high, with notable improvements in new orders, export orders, and backlogs. This reinforced market expectations of accelerated U.S. growth in early 2024. However, the survey was completed before the full impact of the escalated Middle East conflict was reflected. As oil and gas prices rise, the risk of renewed inflation is re-emerging, which could weigh on growth in the coming quarters. In financial markets, Goldman Sachs CEO David Solomon said that although the Middle East conflict is large-scale, initial market reactions have been relatively restrained, and investors may need weeks to assess its impact on the economy and asset prices. He believes markets will only see sharper adjustments when geopolitical events materially alter growth prospects. Currently, rising oil prices have heightened inflation concerns, putting pressure on global equities, but the U.S. economy remains supported by relatively accommodative financial conditions and policy factors, keeping the overall outlook attractive. In summary, in both Japan and the U.S., the resilience of the services sector is supporting economic expansion in the short term. However, energy price volatility, inflation uncertainty, and complex policy trade-offs triggered by the Middle East conflict are becoming key variables affecting future growth paths.

On a daily basis, USD/JPY shows an upward-opening Bollinger Band, with moving averages diverging higher. Price oscillates along the EMA12 and the Bollinger Upper Band, and after building a golden cross, the MACD and signal lines have returned above the zero line, indicating a return to bullish territory. If today closes with a doji star, the pair is likely to challenge the previous high and round-number resistance levels of 159.4 and 160 again. RSI stands at 58, reflecting optimistic investor sentiment. Based on the four-hour chart, the Bollinger Bands are narrowing, moving averages are flattening, and price is oscillating around the EMA12 and the Bollinger Middle Band, suggesting a possible imminent breakout. The current range-bound movement continues, with the MACD and signal lines remaining above the zero line, maintaining an overall bullish bias. RSI is at 54, indicating a wait-and-see market sentiment. Therefore, it is better to buy at lows.

Trading direction: Buy

Entry Price: 157

Target Price: 162

Stop Loss: 154

Support: 154/152/149.5

Resistance: 160/161/162