Yen Sees Mild Uptick Following Mixed CPI and PMIs, A Signal for Buyers' Return?

Samantha Luan

Economic

Central Bank

Forex

Summary:

Trading activity is rather subdued in Asian session today, with most major currency pairs and crosses hovering within yesterday's range.

Yen is showing a slight recovery, albeit in the context of mixed inflation and PMI data. While Japan's core CPI remains persistently above BoJ's target, the latest figures haven't provided a strong impetus for the central bank to shift away from its negative interest rate policy or to alter its yield curve control strategy. BoJ officials have emphasized the importance of a sustainable wage-price spiral, and they are likely to await the results of wage negotiations early next year before making significant policy decisions.

Throughout the week, New Zealand Dollar has emerged as the strongest currency, additionally supported by much better-than-expected retail sales data released today. Australian Dollar and British Pound Sterling are following as the second and third strongest.

On the other end of the spectrum, Euro is the weakest, closely followed by Dollar. However, it's worth noting that Euro's current position appears to be more about consolidating recent gains against Dollar, and EUR/USD maintains near-term bullish outlook. A reversal in Euro and Dollar's positions could occur once this consolidation phase concludes.

Yen, currently positioned as the third weakest, is in a phase of digesting its gains from the previous week. However, there is potential for Yen to ascend in the rankings before the week concludes. Canadian Dollar and Swiss Franc are displaying mixed performances.

From technical analysis standpoint, USD/JPY's recovery from 147.14 is so far still capped by 55 4H EMA. Fall from 151.89 is still in favor to continue, and break of 148.57 minor support will bring retest of 147.14 support first. However, sustained trading above the EMA will retain near term bullishness, and bring a test on 151.89 high. Market watchers will be looking to see if this scenario plays out this week or in the next. Yen Sees Mild Uptick Following Mixed CPI and PMIs, A Signal for Buyers' Return?_1

Yen Sees Mild Uptick Following Mixed CPI and PMIs, A Signal for Buyers' Return?_1

In Asia, Nikkei closed up 0.55%. Hong Kong HSI is down -1.48%. China Shanghai SSE is down -0.63%. Singapore Strait Times is down -0.52%. Japan 10-year JGB yield is up 0.0431 at 0.774.

BoE's Pill stresses persistence in inflation fight

In a Financial Times interview, BoE Chief Economist Huw Pill emphasized the need for the MPC to avoid prematurely "declaring victory" in the fight against inflation, noting that CPI is still considerably above BoE's 2% target, currently at 4.6%.

Pill acknowledged UK's economic slowdown, noting "slower growth in activity and employment." However, he assessed that the current inflation scenario is "more supply-driven rather than demand-driven." Weakening in economic activity is not necessarily leading to a reduction in inflationary pressures, as might typically be expected.

Analyzing recent economic indicators, Pill observed more evidence of "sort of stubborn, high-level rates of inflation" and and growth that are "stronger" than being compatible with 2% inflation over the medium term.

He also argued that if the slowdown in economic activities and employment growth is linked to a decline in the economy's supply performance, rather than a drop in demand, it wouldn't create the necessary slack to ease domestically generated inflation.

Japan's CPI core rises to 2.9%, above BoJ target for 19th mth, services prices surge

Japan's core CPI, which excludes fresh food prices, rose slightly from 2.8% yoy to 2.9% yoy in October, falling just below expected 3.0% yoy. Notably, this core CPI has stayed above BoJ's target of 2% for the 19th consecutive month, indicating persistent inflationary pressures.

Headline CPI, which includes all items, accelerated from 3.0% yoy to 3.3% yoy. However, core-core CPI, which excludes both food and energy, showed a slight deceleration, dropping from 4.2% yoy to 4.0% yoy. Despite this decrease, core-core CPI has remained above 4.0% for seven consecutive months, highlighting sustained inflation in areas beyond just the volatile items.

Breaking down the details, energy prices saw a significant decrease of -8.5% yoy. In contrast, food prices continued to climb, recording a 7.6% yoy increase. Durable goods also experienced a price rise of 3.2% yoy. Notably, services prices surged by 2.1% yoy, marking the fastest gain since 1993. This sharp increase in services prices underscores the broadening of inflationary pressures within the Japanese economy.

Japan's PMIs: Manufacturing contracts, services slightly improve

Japan's PMI for November shows a continuing contraction in the manufacturing sector and a slight improvement in services.

Manufacturing PMI dropped from 48.7 to 48.1, falling below the expected 48.8 and marking another month below the crucial 50.0 threshold, which separates contraction from expansion. This ongoing contraction has been the trend since June.

Conversely, Services PMI saw a marginal increase, moving up from 51.6 to 51.7, indicating a slight expansion in this sector. However, Composite PMI, which combines both manufacturing and services, edged down from 50.5 to exactly 50.0, highlighting stagnation in overall private sector activity.

Usamah Bhatti, an economist at S&P Global Market Intelligenc said: "Activity at Japanese private sector firms stagnated midway through the fourth quarter of 2023." This stagnation is further reflected in the demand conditions, which Bhatti noted remained "muted in November and were little-changed from October."

New Zealand retail sales volume flat in Q3, value up 1.5% qoq

In New Zealand, Q3 2023 saw retail sales volumes remain unchanged at 0.0% qoq, defying expectations of a -0.8% decline.

However, a contrasting trend emerged in the sales value, which increased by 1.5% qoq, indicating a disparity between the number of goods sold and their monetary value.

On an annual basis, there was a -3.4% yoy decrease in sales volume, whereas sales value saw 1.1% yoy increase.

These divergences should be reflective of inflationary pressures and corresponding shift in consumer purchasing patterns.

Looking ahead

Germany Q3 GDP final and Ifo business climate will be released in European session. Later in the day, Canada retail sales and US PMIs will be featured.

EUR/JPY Daily Outlook

With 162.08 minor support intact, EUR/JPY's rebound from 161.22 could extend further to retest 164.29 high. Firm break there will resume larger up trend. On the downside, however, break of 162.08 will turn bias back to the downside, to resume the fall from 164.29 through 161.22 towards 159.75 resistance turned support. Yen Sees Mild Uptick Following Mixed CPI and PMIs, A Signal for Buyers' Return?_2

Yen Sees Mild Uptick Following Mixed CPI and PMIs, A Signal for Buyers' Return?_2

In the bigger picture, rise from 114.42 (2020 low) is in progress. Next target is 169.96 (2008 high). On the downside, break of 159.75 resistance turned support is needed to be the first sign of medium-term topping. Otherwise, outlook will remain bullish even in case of deep pullback. Yen Sees Mild Uptick Following Mixed CPI and PMIs, A Signal for Buyers' Return?_3

Yen Sees Mild Uptick Following Mixed CPI and PMIs, A Signal for Buyers' Return?_3

Source: ActionForex

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SAXO

Forex

JPY: More room for weakness

Japan's October inflation was reported this morning, and showed a re-acceleration after three consecutive months of softening. Headline CPI was at 3.3% YoY, higher than last month's 3.0% and core also accelerated to 2.9% YoY from 2.8%, although it was below the expected 3.0%. Core-core measure however showed some signs of cooling but remained high at 4.0% YoY (vs. exp. 4.1% and prev. 4.2%). This continues to question whether inflation is really transitory as Bank of Japan has been saying, given headline inflation has been above the BOJ's 2% target since April 2022. Japan Inflation Rebound Unlikely to Deter Bank of Japan_1

Japan Inflation Rebound Unlikely to Deter Bank of Japan_1

While this could spook BOJ pivot bets, JPY hardly reacted to the release. One, there is still an element of one-off drivers in inflation. Much of the acceleration in October was driven by reduction in government subsidies that lifted utility bills, or higher hotel costs as inbound tourism accelerated. Higher import prices due to sustained yen weakness also continued to underpin. However, with the higher cost of living taking a toll on consumer spending, BOJ is unlikely to be convinced that inflation has become entrenched. As such, focus will remain on spring wage negotiations as that could be the only catalyst to prompt any BOJ tweaks next year, even if it remained minor.

That means yen will remain a play of Treasury yields for now, and US PMIs today but more importantly the PCE data next week will be key to watch. USD/JPY has reversed back higher to 149.50 from lows of 147.15 this week. Pair could test 150 or higher as that level has been cleared for BOJ intervention risks earlier in October, while 152 could serve as an intervention risk threshold. Saxo's trade signals also identify 151.86 as a key resistance. Germany's suspension of debt limit serves as a reminder of fiscal dominance and could spark a sell-off in global bonds, which suggests near-term downside for yen. But valuation and positioning suggest a significant room for yen appreciation into 2024. If US PMIs indicate a moderation, USD/JPY could reverse back towards 149.

Market Takeaway: USD/JPY could rise towards 151+ before intervention risks come in play. A drop below 149 is needed to bring bearish trend back in focus.

EUR, GBP: Fiscal dominance back in focus

Eurozone and UK PMIs conveyed a sense of stability and recovery, more pronounced in UK than Eurozone. UK services and composite PMI jumped up to expansion territory of above-50 and manufacturing also improved to 46.7 from 44.8. Eurozone PMIs however remained below 50, although both manufacturing and services showed an improvement. EURUSD came under some pressure on the release, but is sticking to the 1.09 handle for now. GBP/USD rose to highs of 1.2564 before settling in the 1.2540-area. That saw EUR/GBP pushing below 0.87 handle, although the break doesn't look convincing for now and support level of 0.8647 will be on watch.

Japan Inflation Rebound Unlikely to Deter Bank of Japan_2

Fiscal concerns were also back in focus with Germany's suspension of debt limits for a fourth consecutive year raising concerns of additional borrowing and increasing bond supply, which pushed yields higher. Germany Q3 GDP and IFO survey will be on watch today.

Market Takeaway: EUR/GBP could bounce back higher with a series of supports piling below 0.87.

SEK: Riksbank pause a sign of peak rates

The Riksbank left the policy rate unchanged at 4%, but continued to signal peak rate of 4.10% in the beginning of 2024. The press statement says that the board is "is prepared to raise it further if prospects for inflation deteriorate". However, the decision was unanimous, and inflation is seen to be declining inti 2024, indicating that the peak rate may have been reached. The board also indicated an openness to increase the size of the QT programme at its next meeting in January (announcement due Feb 1).

Market Takeaway: EUR/SEK rose higher to 11.44 from a low of 11.35 and the decision may leave SEK more prone to profit taking. Key levels to watch are 11.50 and 11.85.

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Owen Li

Energy

Oil prices dipped on Friday but were still on track to record their first weekly gain in five on hopes the OPEC+ alliance of oil producing countries will continue to cap crude output next year to support the market.

Brent, the global benchmark for two thirds of the world's oil, was trading 0.02 per cent lower at $81.40 a barrel at 7.54am UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 0.82 per cent at $76.47 a barrel.

On Thursday, Brent settled 0.66 per cent lower at $81.42 a barrel. There was no settlement for WTI due to the Thanksgiving holiday in the US. Oil Set for First Weekly Gain in Five on Hopes Of OPEC+ Supply Cuts_1

Oil Set for First Weekly Gain in Five on Hopes Of OPEC+ Supply Cuts_1

Oil prices slumped as much as 4.9 per cent on Wednesday after OPEC+ surprised the market by postponing its ministerial meeting by four days to November 30.

The meeting is expected to chart the course of crude output cuts next year and discuss any possible changes to the group's long-standing agreement aimed at stabilising the oil market.

“The initial market reaction appeared to suggest traders view this as a lack of unity behind supply cuts going into the new year, but it wasn't long until oil reversed those moves,” said Craig Erlam, senior market analyst at Oanda.

“While there has been more speculation over the day, we may have to wait until the virtual meeting on the 30th to learn just how unified the group remains and whether Saudi Arabia and Russia will need to do any additional heavy lifting."

Oil prices, which surged to nearly $98 in September, are on track for a back-to-back monthly loss amid expectations of a tight crude market in the fourth quarter.

Meanwhile, higher oil production in Iran and loosening of sanctions on Venezuela can ease supply concerns next year.

Iran’s oil production should reach 3.6 million barrels per day by March 20, 2024, Oil Minister Javad Owji was quoted as saying on Tuesday by the Tasnim news agency.

“We aim to reach four million bpd of oil production for next year,” he said.

Source: The National News

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Thomas

Palestinian-Israeli conflict

Latest news on the Israeli-Palestinian conflict

0:20

Iraqi Islamic resistance groups attacked the U.S. Ain al-Asad base in western Iraq.

0:30

Iran's foreign minister met with his Qatari counterpart in Doha.

Latest News on the Israeli-Palestinian Conflict (November 24)_1

0:44

"Since Israel launched its ground offensive in Gaza, our fighters have partially or completely destroyed 335 Israeli tanks and armored personnel carriers," Qassam Brigades spokesman Abu Obaida said.

01:35

Israeli forces stepped up attacks on Gaza hours before the ceasefire, causing numerous casualties.

Dozens of Palestinians were killed and hundreds injured as Israeli forces stepped up attacks on Gaza ahead of a truce. Israeli fighter jets struck the Sheikh Nasser neighborhood east of Khan Younis in the southern Gaza Strip, killing at least five people and wounding dozens more.

Among the injured was a photographer, the Wafa state news agency reported. At least 10 people were killed when Israeli forces attacked a home in the Shehradwan neighborhood of northern Gaza. Other attacks were reported in the al-Nuseirat refugee camp in central Gaza. Many of those present had fled their homes in Gaza City.

02:04

The Gaza media office reiterated its call for the Rafah crossing to be opened "around the clock" ahead of a four-day truce, and for the distribution of much-needed medical supplies and aid to "all hospitals" across Gaza.

02:25

Hebrew Media Reporter: The number of Israeli soldiers refusing to serve is increasing, and the Israeli government is enacting strict new laws against these deserters.

02:56

According to reports, during the ceasefire between Hamas and Israel, Lebanese Hezbollah and Iraqi Islamic resistance groups will cease attacks on the United States and Israel.

03:44

On Thanksgiving Day, November 23, pro-Palestinian groups held a protest march at Macy’s Department Store in New York, USA. The march attracted tens of thousands of spectators. Representatives of Native American tribes displayed Palestinian flags to the crowd on a float, many of whom wore shirts that read "Stop Genocide" and unfurled banners with the same words, referring to the racial treatment of Native Americans after Europeans arrived in the Americas. Extermination is linked to the current Israeli attack on Gaza and the deaths of thousands of Palestinians. After a few minutes, police removed the protesters.

Many Native Americans view Thanksgiving as a day to commemorate the deaths of their ancestors and see parallels in what many describe as the ethnic cleansing of the Palestinian people during the Nakba of 1948 and the decades that followed.

Latest News on the Israeli-Palestinian Conflict (November 24)_2