Japanese yen takes a tumble

• Japan’s wage growth decelerates to 0.2%

The Japanese yen is down sharply on Wednesday. In the North American session, USD/JPY is trading at 145.74, up 0.86%.

Japanese wage growth sputters

Japan’s wage growth was a major disappointment in November, with a meager gain of 0.2%. This follows the October reading of 1.5% which was also the estimate. This marked the lowest gain since December 2021. The weak wage data will support the Bank of Japan in maintaining its ultra-loose policy. Governor Ueda has hinted at a shift in policy but has stressed that won’t happen before inflation is sustainable at 2%, backed by higher wage growth. The BoJ is looking ahead to the annual wage negotiations in March. If workers win significant pay raises from employers, that could set the stage for the BOJ tightening interest rates in April.

The US dollar has looked sharp early in 2024, despite the Fed pivoting sharply and signalling that it plans to raise rates this year. The dollar has surged 3.3% against the yen in January, after a 4.85% decline in December. Last week’s nonfarm payroll report was stronger than expected, providing support for the Fed to maintain rates in restrictive territory until inflation falls closer to the 2% target.

This ‘higher for longer’ stance was reiterated by Atlanta Fed President Bostic on Monday, who stated that he had a “natural bias to be tighter” and anticipated two rate cuts by the end of the year, with an initial one in the third quarter. This is a far cry from market expectations of up to six rate cuts this year, starting in March.

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USD/JPY Technical

• USD/JPY has pushed above resistance at 144.93 and 145.37. Above, there is resistance at 146.13
• There is support at 144.17 and 143.73

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