USD/JPY Forecast: Wage Growth and BoJ Opinions Signal Possible Yen Moves

Wage Growth, the Bank of Japan, and Intervention Risks

On Thursday, wage growth figures for March put the USD/JPY in focus.

Average cash earnings increased 0.6% year-on-year after rising 1.8% in February. Economists forecast an increase of 1.5%.

Moreover, overtime pay fell by -1.50% year-on-year after declining by 1.0% in February. Economists expected overtime pay to drop by 0.6%.

The weaker average cash earnings and more marked decline decline in overtime pay will likely draw the attention of the Bank of Japan. Softer wage growth could reduce disposable income and impact household spending. Downward trends in household spending could dampen demand-driven inflationary pressures and leave the BoJ in a holding pattern.

While the wage growth figures attracted investor interest, the BoJ Summary of Opinions also needs consideration. Investors should monitor views on the weakness of the Yen, the economy, inflation, and the BOJ rate path.

US Economic Calendar: US Jobless Claims and the Fed

Later in the Thursday session, US jobless claims and Fed commentary will warrant investor attention.

Economists forecast initial jobless claims to increase from 208k to 210k in the week ending May 4.

A larger-than-expected rise in jobless claims could fuel investor expectations of a September Fed rate cut. Weaker labor market conditions could affect wages and reduce disposable income. Downward trends in disposable income could force consumers to curb spending, dampening demand-driven inflation. Softer inflationary pressures may enable the Fed to consider interest rate cuts.

Beyond the numbers, the Fed will remain in focus. FOMC member Mary Daly is on the calendar to speak. As a voting member of the Committee, views on inflation, the economic outlook, and the timing of interest rate cuts could move the dial.

Short-term Forecast

Near-term trends for the USD/JPY depend on household spending numbers from Japan and Fed chatter. Weaker-than-expected household spending trends could impact hopes of a BoJ rate hike. In contrast, Fed speakers remain concerned about US inflation, tilting monetary policy divergence toward the US dollar. However, investors should monitor for intervention threats.

USD/JPY Price Action

Daily Chart

The USD/JPY sat above the 50-day and 200-day EMAs, confirming the bullish price trends.

A USD/JPY breakout from the 156 handle could support a move toward the 158 level. A break above the 158 handle could give the bulls a run at the April 29 high of 160.209.

The Bank of Japan Summary of Opinions, US jobless claims, the Fed, and intervention chatter need consideration.

Alternatively, a USD/JPY drop below 155 would bring the 50-day EMA into play. A break below the 50-day EMA could signal a drop to the 151.685 support level.

The 14-day RSI at 57.05 indicates a USD/JPY move to the 160 handle before entering overbought territory.