Rising Japanese Wage Data Lifts the Yen

USD/JPY Analysis

Broadly Rising Wages Provides Big Boost for BoJ Policy Normalisation

In Japan, years of seemingly entrenched deflation has kept the Bank of Japan in defensive mode, hardly adjusting ultra loose monetary policy with the goal of achieving sustainable inflation and demand-led growth. One of the Bank’s recent criticisms of the relatively high inflation in Japan was born out of the finding that inflation have been the result of a supply-side issue (Covid lockdowns + fuel/gas crisis) instead of being the natural result of increased demand from consumers and businesses.

However, a report from Rengo – the nations umbrella trade union group – confirmed that the country’s fastest wage growth since 1993 was actually more widespread than many had thought. Wages observed within Rengo affiliated groups across Japan rose by an average of 3.5% at the beginning of the year, short of the 1993 print of 3.9%. More importantly, signs of broader wage pressures have been observed as small and medium enterprises (SMEs) saw their wage bill rise 3.23% meaning the wider job market is participating in the latest salary trend.

USD/JPY Technical Levels of Consideration

The 1-hour chart highlights the intra-day move lower as the news filtered through the headlines, where the yen appeared to claw back some of the ground it has lost, in this case, versus the US dollar.

USD/JPY 1-Hour Chart

Source: TradingView, prepared by Richard Snow

Looking at the daily chart, USD/JPY appears to be building in multiple days of sideways trading which could signal bullish fatigue. This is particularly interesting considering bulls had lined up for a test of the 145 level, prior resistance in September and October 2022 and is the same level when Japanese officials intervened in the FX market to enhance the value of the yen to more beneficial levels.

After testing 145, the pair has failed to break and close above here, with a pullback potentially in the works. The MACD is on the verge of confirming a bearish crossover while the RSI appears moments away from confirming a return from overbought territory.

It’s important not to get too carried away as the uptrend remains strong and the BoJ will require a lot more evidence than one wage print to unwind years of supportive monetary policy. BoJ Governor Ueda referred to a scenario that would necessitate conversations of policy change being the potential for rising inflation in 2024 but stressed that those at the table would need to be confident in their forecast is such a scenario were to present itself. Support remains back at 142.25 should price action ease in the coming sessions.

USD/JPY Daily Chart

Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX