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Strong data supports Bank of Japan rate hike, but 'neutral' pledge may limit bulls
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Hello everyone, today XM Forex will bring you "[XM Forex]: Strong data supports the Bank of Japan to raise interest rates, but the "neutral" www.xmtraders.commitment may limit bulls." Hope this helps you! The original content is as follows:
Japan’s exports have grown for three consecutive months and core machinery orders have also risen, indicating that the economy is recovering from last quarter’s contraction. The market expects the Bank of Japan to raise interest rates by 25 basis points on Friday (December 19), even though its forward guidance may remain neutral.
Japan’s export growth in November exceeded expectations, mainly due to stable demand from the United States and the European Union
Exports for the month increased by 6.1% year-on-year (3.6% in October, and the market consensus was 5.0%). The finalization of the U.S.-Japan trade agreement and the strong growth in global semiconductor demand are the main driving forces behind the substantial growth in Japan's exports.
From the perspective of export destinations, exports to Asia increased by 4.5%, of which exports to Malaysia (14.3%) and Vietnam (14%) increased significantly, and exports to the United States and the European Union also increased significantly by 8.8% and 19.6% respectively.
From the perspective of export www.xmtraders.commodity categories, the export of machinery products increased by 5.1%, and the export of electrical products increased by 7.4%. Semiconductor exports rose 13%, in line with growth trends among other major Asian chipmakers. Semiconductor exports across Asia remain strong. Automobile exports fell by 4.1%. However, vehicle shipments to the United States increased slightly (1.5%) and exports to the EU remained strong (up 25.7%).
Japan's exports are gradually picking up thanks to stable demand for machinery products
In a separate report, core machinery orders increased significantly for the second consecutive month
A seasonally adjusted month-on-month increase of 7.0% in October followed a 4.2% increase in September. Currently overseas demand is stronger than Japan’sDomestic demand is likely to drive export growth in the www.xmtraders.coming months. However, weakness in non-manufacturing demand suggests that the expected recovery in business capital spending investment may be weaker than previously estimated.
Recently released industrial output, retail sales, trade data and survey results have reinforced market expectations that economic growth will recover in the fourth quarter of 2025. The market currently expects the economy to grow by 0.4% quarter-on-quarter in the fourth quarter of 2025, and the year-on-year GDP growth in 2025 is expected to reach 1.2%, and in 2026 it is expected to be 1.4%.
Core machinery orders have grown strongly for two consecutive months
Preview of the Bank of Japan policy meeting
Market participants have almost fully digested the expectation of a 25 basis point interest rate hike, and the current focus will be on the remarks of Governor Ueda. Taking into account the increasing concerns about rising market interest rates, Governor Ueda is not expected to send any hawkish signals to the market at the press conference. The Bank of Japan expects real interest rates to remain in negative territory after raising interest rates later this week, leaving room for further interest rate hikes.
Current market expectations point to another interest rate hike in June or July next year. However, assessments suggest a rate hike in October is more likely. The Bank of Japan is expected to maintain its current estimate of the neutral interest rate in the 1%-2.5% range for the foreseeable future. The recent market reaction to Governor Ueda's remarks about reassessing the neutral interest rate seems to be overdone. It should be clear that the neutral interest rate is a conceptual range, not a precise point, and the Bank of Japan does not attempt to define it precisely.
Looking ahead, the Bank of Japan will pay close attention to the economic impact of rising interest rates on corporate lending, bank loans, private consumption and capital expenditures. Key indicators to watch in the near future include spring salary negotiations and yen exchange rate trends.
Recently released positive economic data shows that GDP is expected to rebound in the fourth quarter of 2025
www.xmtraders.comprehensive judgment on the USD/JPY exchange rate
Short term (before and after the resolution): The exchange rate trend will be highly dependent on the Bank of Japan’s resolution and the tone and forward-looking guidance of Governor Ueda’s press conference. In the context of "interest rate hikes are priced in", any signal that is less hawkish than the market's implied hawkishness may trigger a rebound in USD/JPY (a weakening of the yen). On the other hand, if there are hints of more hawkishness, the yen will strengthen. Affected by the strengthening of the U.S. dollar on Wednesday, the U.S. dollar fluctuated upward against the Japanese yen, with an increase of about 0.48%.
Medium term: The confirmation of Japan’s economic recovery (especially Q4 GDP data) and the global semiconductor demand cycle will continue to provide fundamental support for the yen. However, whether the yen can trend stronger depends more on whether the Bank of Japan will raise interest rates faster than the Federal Reserve, and whether expectations of a narrowing of the interest rate differential between the United States and Japan will further strengthen.
The above content is all about "[XM Foreign Exchange]: Strong data supports the Bank of Japan to raise interest rates, but the "neutral" www.xmtraders.commitment may limit long positions". It is carefully www.xmtraders.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!
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