USD/JPY Forecast: Wage Growth in Japan Slows Easing Pressure on a BoJ Pivot
Wage growth in Japan slows markedly, easing pressure on the USD/JPY ahead of the heavily anticipated US CPI Report on Thursday.
Highlights
- The USD/JPY gained 0.17% on Tuesday, ending the session at 144.466.
- Softer inflation and household spending numbers from Japan contributed to the loss.
- On Wednesday, wage growth numbers from Japan and central bank commentary are focal points.
USD/JPY Movements on Tuesday
The USD/JPY gained 0.17% on Tuesday. Partially reversing a 0.26% loss from Monday, the USD/JPY ended the session at 144.466. The USD/JPY fell to a low of 143.423 before rising to a session high of 144.622.
Wage Growth and the Bank of Japan in Focus
On Wednesday, wage growth figures from Japan drew investor interest. Wage growth remains the focal point for the Bank of Japan. A pickup in wage growth could fuel consumer spending and demand-driven inflation. The Bank of Japan has signaled its intent to exit negative rates on demand-driven inflationary pressures.
Average cash earnings increased by 0.2% year-over-year in November versus 1.5% in October. Economists forecast average cash earnings to rise by 1.5%.
The weaker wage growth figures could give the Bank of Japan more reason to delay a pivot from negative rates. However, investors anticipate wage negotiations in March as the focal point for the BoJ.
US Mortgage Rates and FOMC Member Commentary
On Wednesday, US mortgage rates will garner investor interest. 30-year mortgage rates have been falling since peaking at 7.79% in October.
A continued downward trend could lead to an increase in disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation. A resulting pickup in consumer spending may force the Fed to delay rate cuts. Delaying rate cuts could curb consumer spending and dampen demand-driven inflation.
According to Freddie Mac, 30-year mortgage rates fell to 6.62% in the first week of January.
Beyond the numbers, FOMC member commentary needs monitoring. Fed Vice Chair John Williams is on the calendar to speak on Wednesday. References to inflation, the US Jobs Report, and interest rates would move the dial.
Short-term Forecast
Near-term trends for the USD/JPY remain hinged on the US CPI Report and central bank commentary. Recent economic indicators from Japan eased pressure on the BoJ to pivot from negative rates. A hotter-than-expected US CPI Report could tilt monetary policy toward the US dollar.
USD/JPY Price Action
Daily Chart
The USD/JPY sat below the 50-day EMA while remaining above the 200-day EMA, sending bearish near-term but bullish longer-term price signals.
A USD/JPY move through the 144.713 resistance level would give the bulls a run at the 50-day EMA and 146 handle.
On Wednesday, investors will focus on wage growth numbers from Japan and central bank commentary.
However, a break below the 200-day EMA would support a fall toward the 142.177 support level.
The 14-day RSI at 51.09 suggests a USD/JPY return to the 146 handle before entering overbought territory.
4-Hourly Chart
The USD/JPY held above the 50-day EMA while remaining below the 200-day EMA, sending bullish near-term but bearish longer-term price signals.
A USD/JPY move through the 144.713 resistance level and the 200-day EMA would bring the 146.649 resistance level into play. Selling pressure may intensify at 144.700. The 200-day EMA is confluent with the 144.713 resistance level.
However, a break below the 50-day EMA would support a fall toward the 142.177 support level.
The 14-period 4-hour RSI at 56.51 suggests a USD/JPY return to the 146 handle before entering overbought territory.