UPDATE: The Japanese Yen (JPY) is experiencing a significant surge at the start of the week, nearing its highest level since November 14 against a weakening US Dollar (USD). This uptick comes as new data reveals a robust 2.6% annual wage growth in Japan, bolstering expectations for a rate hike by the Bank of Japan (BoJ) in December.
The immediate impact of Japan’s wage growth data is palpable. Investors are increasingly convinced that rising wages will enhance household purchasing power, fueling demand and potentially leading to inflation-driven economic growth. Despite a downward revision of Japan’s Q3 GDP, which showed a contraction of 0.6%—more severe than previously estimated—market sentiment remains optimistic regarding the BoJ’s monetary policy adjustments.
Earlier today, the latest data indicated that while nominal wages rose sharply, inflation-adjusted real wages have continued to decline for the tenth consecutive month, shrinking by 0.7% year-on-year due to a 3.4% rise in consumer prices. This disconnect adds pressure on the BoJ to act decisively in its upcoming meeting, as BoJ Governor Kazuo Ueda noted last week that the likelihood of meeting economic and price projections is increasing.
The Yen’s ascent is also assisted by a prevailing cautious market sentiment, enhancing its appeal as a safe-haven currency. Meanwhile, the USD languishes near its lowest levels since late October, weighed down by expectations that the Federal Reserve will announce further rate cuts during its meeting this week.
As traders anticipate the Fed’s decisions, the CME Group’s FedWatch Tool indicates a nearly 90% chance of a rate cut, which further depresses the USD. This situation creates a favorable environment for the JPY, narrowing the rate differential between Japan and other major economies.
The USD/JPY currency pair continues to navigate a challenging landscape. Currently, it is testing support near 154.35, following a struggle to regain momentum above the 100-hour Simple Moving Average. If the pair breaks below this level, it could slide to 154.00, while any recovery attempts may face resistance around 155.35.
Next Steps: Investors will be closely watching the upcoming Fed meeting and the associated economic projections, including Fed Chair Jerome Powell’s remarks. The outlook for USD/JPY remains uncertain, with potential volatility ahead as these central bank decisions unfold.
The situation is rapidly evolving, and the implications of these financial maneuvers will be significant for markets around the globe. Stay tuned for further updates as this story develops.
