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USD/JPY Falls as Japan's Wage Growth Fuels BoJ Rate Hike Speculation
Economic
Summary:
The Japanese yen strengthened against the US dollar as Japan’s real wages rose by 3.6% year-over-year, surpassing expectations.
Sell
CLOSEDUSDJPY
End Time
143.400
Entry Price
141.000
TP
145.000
SL
156.858 -1.106 -0.70%
526
Points
Profit
141.000
TP
142.874
CLOSING
143.400
Entry Price
145.000
SL
The Japanese yen (JPY) saw a steady rise against the US dollar (USD), as the latest labor data showed that real wages in Japan have increased for the second consecutive month. In July, Japan’s Labor Cash Earnings surged by 3.6% year-over-year, marking the highest growth since January 1997. Although this represents a slowdown from the 4.5% rise in June, it still exceeded market expectations of 3.1%. This robust performance has intensified speculation that the Bank of Japan (BoJ) may shift towards a more hawkish stance and could raise interest rates before the end of 2024.
Bank of Japan Board Member Hajime Takata, in a recent speech, acknowledged that Japan's economy is recovering at a moderate pace. However, he also highlighted that certain weak signals remain in the economic outlook. While the stock and foreign exchange markets have seen heightened volatility, Takata reaffirmed the BoJ’s commitment to achieving its inflation target. His comments have fueled further discussion around the BoJ's future monetary policy, with some analysts debating how soon the central bank might begin reducing its balance sheet.
Meanwhile, the US dollar, which had been under pressure, managed to recover some of its recent losses, supported by a rise in US Treasury yields. However, the Greenback faced headwinds after the release of the US JOLTS Job Openings report for July, which came in lower than expected. Job openings dropped to 7.673 million, down from 7.910 million in June, marking the lowest figure since January 2021. This data points to a cooling labor market, which could lead the Federal Reserve to adopt a more dovish approach.
The market now shifts its focus to upcoming US economic data, particularly the ISM Services PMI and Initial Jobless Claims reports. Any further signs of economic slowdown could increase pressure on the Fed to implement rate cuts sooner rather than later. San Francisco Federal Reserve President Mary Daly recently stated that the Fed should consider cutting policy rates as inflation declines and economic growth slows. Daly’s neutral stance, along with Atlanta Fed President Raphael Bostic's cautious remarks about maintaining restrictive policy for too long, reflect the ongoing debate within the central bank.
The FedTracker tool, which measures the tone of Fed officials’ speeches, rated Daly's comments as neutral, while Bostic's words were slightly more hawkish, further indicating mixed signals from the Federal Reserve.
Japan’s government is also closely monitoring both domestic and international market developments. Chief Cabinet Secretary Yoshimasa Hayashi emphasized the need for close coordination between fiscal and monetary policy. Japan recently announced a ¥989 billion plan to fund energy subsidies, aiming to alleviate the pressures caused by rising energy costs. These measures come as Japan continues to face cost-of-living challenges.
In addition to wage growth, Japan’s service sector has also been expanding. The Jibun Bank Services PMI for August was revised to 53.7, marking the seventh consecutive month of growth. While the index reflects stable service sector activity, it remains unchanged from July's figure, signaling a potential plateau in the sector's recovery.
Technical Analysis
From a technical standpoint, USD/JPY has experienced further bearish momentum, with the pair breaking below the key support level at 145.36. This move suggests that USD/JPY is likely to continue its downward trajectory, approaching the next significant support level at 143.00. If bearish pressure persists, the pair could drop even further, with the next target being 141.00.
The current bearish bias is reinforced by the negative pressure exerted by the 50-day Exponential Moving Average (EMA). As long as USD/JPY remains below the 145.36 level, we expect the bearish trend to continue. The expected trading range for the near term is between the support at 142.80 and resistance at 144.50.
TRADE RECOMMENDATION
SELL USDJPY
ENTRY PRICE: 143.400
STOP LOSS: 145.00
TAKE PROFIT: 141.00
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