This week started off rather lazily due to the bank holiday in the USA and Canada. As expected, the afternoon session was quiet and did not bring about any significant changes in the financial markets.
The following days are expected to be much more interesting.
This week:
On Monday, the US markets will be closed for President’s Day, while parts of Canada will be celebrating Family Day.
On Tuesday, Australia will focus on the RBA’s monetary policy announcement. In the UK, investors will monitor the change in the number of benefit claimants, the 1q / y average earnings index and the unemployment rate. Meanwhile, Canada will publish its inflation data.
Key events on Wednesday include the Australian wage price index q/q and the announcement of the RBNZ’s monetary policy in New Zealand. The UK will publish inflation data, while the US will publish the FOMC meeting minutes.
On Thursday, Australia will publish data on the change in employment and the unemployment rate, and the United States will publish initial jobless claims.
On Friday, both the UK and Canada will publish their retail sales figures (MoM). In addition, the preliminary PMI for manufacturing and services will be published for the euro zone, the UK and the US.
Some FOMC members are expected to make comments throughout the week.
Japanese GDP: Monday’s result better than expected
Monday’s result is better than the current BoJ GDP forecast and amounted to 0.7% y/y.
As for inflation, core prices are expected to rise to 4.0% y/y in January and remain at a high level of 3% for some time.
According to local press reports, the outcome of the spring wage negotiations is likely to be as high as last year.
However, the main risk to any long-term outlook is US President Donald Trump’s tariff policy. The stricter-than-expected reciprocal tariffs on Japanese goods could complicate the BoJ’s growth prospects.
However, according to ING experts, the BoJ’s policy priority in the near term should be to contain excessive inflation. As a result, ING maintains the BoJ’s forecast of a hike in May and October 2025 and an additional hike in 2026.
Spring shunto will boost inflation in Japan
Shunto is a Japanese term that can be translated as spring wage offensive. It refers to the wage negotiations that take place simultaneously every spring by trade unions all over Japan.
The wage negotiations between the unions and company management in spring 2024, or Shunto 2024, resulted in an average wage increase of over 5% for the first time in 33 years!
When, more than 30 years ago (late 80s, early 90s), wages rose by an average of 4-5% per year as a result of spring negotiations, inflation reached 4%. Currently, a similar wage increase is expected after the shunto negotiations in spring 2025, which will also increase Japan’s inflation rate to 4% or possibly even higher (currently 3.6%).
Inflation in Japan is on the rise
The Bank of Japan’s only weapon in this situation will be to raise interest rates. At least two increases are expected this year, from the current 0.5 to 1.5-2%.
Such a policy of the Bank of Japan at a time when other central banks are cutting interest rates will increase interest in the yen, which is likely to strengthen the yen against most major currencies. Buying the yen may be a good investment this year.
You can learn more about the phenomenon of shunto in today’s recording on Global Markets:
Technical analysis of USDJPY
USDJPY is trending downwards. If it breaks through the support it is currently at (151.60), the next target could be the demand zone at 143.90. As this is a weekly chart, the decline could last several months, interrupted by upward corrections starting at the demand zones.
Tuesday afternoon tea with live charts 15:00-15:50
Every Tuesday in February, a live ‘Analysis and Trading’ session will be broadcast on the ‘Global Markets’ Comparic24 YouTube channel. I invite you on Tuesday, 25 February at 15:00.
Admission is free. Recordings and live broadcast on YouTube.
I also invite you to my channel https://t.me/TradewithDargo
