- The Japanese Yen is gaining against its G7 counterparts due to rumors that the Bank of Japan (BoJ) will reduce bond buying and potentially raise interest rates.
- Governor Ueda has emphasized wage growth as a key factor, and both average wages and average cash earnings YoY have shown a steady upward trend.
- Japan is set to establish a national minimum wage standard of 1,054 yen per hour on average, the largest increase ever.
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The Japanese Yen is having an exceptional week, continuing to make substantial gains against its G7 counterparts. After two weeks of intervention speculation, the focus has now shifted, driving further gains for the Yen.
Japanese Yen Index
Source: TradingView.com (click to enlarge)
This morning, rumors emerged that the Bank of Japan (BoJ) will announce a plan at next week’s meeting to halve bond buying over the coming years. Sources also suggest that the BoJ will debate raising interest rates, with Governor Ueda aiming to align Japan more closely with global peers.
This aligns with Governor Ueda’s message when he took office. He has emphasized wage growth as a key factor, and both average wages and average cash earnings YoY have shown a steady upward trend.
Additionally, news broke today that Japan is set to establish a national minimum wage standard of 1,054 yen per hour on average, marking the largest increase ever. This step aims to ensure wage growth aligns more closely with core inflation, which was 2.5% in May.
It appears that everyone is focused on inflation and overall economic growth, overlooking a key message that has been a consistent theme during Governor Ueda’s tenure: the need for sustainable wage growth. The data suggests that the Governor has made progress in this area, though there is still room for improvement. The new minimum wage may help bridge this gap.
The rumors have driven Yen bulls into overdrive, breaking through key support areas. The USD, EUR, and GBP have all lost significant ground against the Yen. Given today’s reaction to the rumors, it will be interesting to see how much has already been priced in and whether there will be any movement when the BoJ meets next week.
Economic Data Ahead
Later in the evening we will get the updated CPI numbers from Tokyo which is unlikely to overshadow the optimism ahead of next week’s meeting. US GDP and PCE data could however have an impact on the Yen, particularly if we get a significant uptick in the PCE number. A PCE and GDP print in line or slightly softer than expectations could further aid Yen bulls and push USD/JPY closer toward the 150.00 psychological handle.
Source: For all market-moving economic releases and events, see the MarketPulse Economic Calendar. (click to enlarge)
Technical Analysis
USD/JPY
The USD/JPY pair has broken through the long-term descending trendline that has been in play since December 2023. Following a retest of this trendline, USD/JPY is on track for its third consecutive day of losses but is currently resting on a key support area.
Presently, USD/JPY is holding at 153.60, a level that has shifted from resistance to support and is maintaining the price at the moment. A daily candle close above this level could pave the way for a retest of resistance at the 155.00 handle and the 100-day moving average.
Conversely, a break below this point would bring the 200-day moving average and the psychological 150.00 level into focus, particularly as we approach next week’s BoJ meeting.
It’s important to note that upcoming key US data releases could introduce some volatility. The critical question is whether any reactions or movements in response to this data will be sustainable.
Support
- 153.59
- 151.91
- 150.00
Resistance
- 155.00
- 156.50
- 157.73
USD/JPY Daily Chart, July 23, 2024
Source: TradingView.com (click to enlarge)
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Zain Vawda
He has spent the last 3 years in an analyst role honing his skills across various financial domains, including technical analysis, economic data interpretation, price action strategies, and analyzing the geopolitical impacts on global markets. Currently, Zain is advancing in obtaining his Capital Markets & Security Analyst (CMSA) designation through the Corporate Finance Institute (CFI), where he has completed modules in fixed income fundamentals, portfolio management fundamentals, equity market fundamentals, introduction to capital markets, and derivative fundamentals.
He is also a regular guest on radio and television programs in South Africa, providing insight into global markets and the economy. Additionally, he has contributed to the development of a financial markets course approved by BankSeta (Banking Sector Education and Training Authority) at NQF level 6 in South Africa.
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