Japanese yen jumps on wage growth, nonfarm payrolls next

• Japanese wage growth rises, household spending declines
• US nonfarm payrolls expected to fall
• USD/JPY is sharply lower

The Japanese yen has climbed sharply on Friday. In the European session, USD/JPY is trading at 143.02, down 0.72%. The yen is poised to record its first winning week in a month.

Japanese wages rise, household spending sinks

The wages of Japanese workers have been stagnant for years. That may not have been a problem when inflation was non-existent, but times have changed. Inflation is curently running around 3% and workers secured sharp wage increases in March. The wage hikes are starting to take effect, as wage growth jumped in May by 1.8% y/y, the highest level since February 1995.

The Japanese consumer continues to hold tightly onto their purse strings, despite the strong wage numbers. Household spending fell 4.0% in June, after a 4.4% decline in May and below the consensus estimate of -2.4%.

Wage growth is a key factor in the Bank of Japan’s decision-making process with regard to rate policy. Governor Ueda has continued the BoJ’s ultra-loose policy, stressing that he won’t tighten policy until wage growth increases enough to sustainably maintain inflation around the Bank’s 2% target. If wages continue to accelerate in the coming months, pressure will mount on Ueda to consider tightening policy.

Will the real US labour market please stand up?

All eyes are on the nonfarm payrolls report later on Friday. The consensus estimate stands at 228,000 for June, sharply lower than the May reading of 339,000. Investors, however, aren’t so sure that NFP will decline after the ADP employment report showed a massive gain of 497,000 on Thursday. Unemployment claims and JOLTS Job Openings also declined, leaving investors puzzled over the contradictory signals from this week’s employment releases. It will be interesting to see the direction taken by today’s nonfarm payrolls release. If nonfarm payrolls follows the ADP upswing, the US dollar could post strong gains. Conversely, a weak nonfarm payrolls report could weigh on the US dollar.

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USD/JPY Technical

• There is resistance at 144.11 and 145.28
• USD/JPY is testing support at 143.16. The next support line is 142.43

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