USD/JPY rises, all eyes on BoJ after wage deal

The Japanese yen has extended its losses against the US dollar for a fourth straight day and is down 1.1% this week. In the European session, USD/JPY is trading at 148.70, up 0.28%.

Japanese unions win big, BoJ considering rate hike

Japan’s largest trade union announced today that workers at Japan’s largest firms would receive a 5.28% salary raise, a huge victory for workers. This was much higher than the 2023 increase of over 3%, which was the highest pay rise in over 30 years.

The wage agreement is a crucial development ahead of the Bank of Japan’s rate announcement on March 19th, as it raises the likelihood that the BoJ will lift rates out of negative territory. The BoJ last raised interest rates in 2007, which means that a rise in rates would be a sea-change in policy and would likely send the yen higher.

So what can we expect from the central bank? It’s a close call as to whether the BoJ will shift its ultra-loose policy next week or wait until the April meeting, and BoJ members could well be split on when to raise rates.

Governor Ueda has repeatedly said that stronger wage growth is needed as evidence that inflation is sustainable, and only then will the BoJ will tighten policy. Is the wage agreement enough evidence?

The wage agreement is massive news, but it’s important to remember that the majority of Japanese workers aren’t employed by major companies and aren’t receiving the huge pay raise that the unions negotiated. This means that the new wage agreement isn’t enough on its own to determine overall wage trends. The BoJ could decide to wait until April in order to assess the impact of the wage agreement on inflation.

If the BoJ decides to pause at next week’s meeting, it could still signal that a rate hike is coming soon, and that message could boost the yen. Market participants are eagerly anticipating next week’s BOJ meeting, which promises to be very interesting.

USD/JPY Technical

• USD/JPY has pushed above resistance at 1.4863 and is putting pressure on resistance at 148.96
• 148.63 and 148.04 are providing support

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