Japanese Yen Weekly Forecast: Will Japan’s Wage Growth Signal a BoJ Rate Hike?

USD/JPY Tumbles Amid US Recession Fears and BoJ Rate Hike Expectations

Recession fears and BoJ rate hike expectations sent USD/JPY tumbling 1.71% last week, falling to the lowest level since the 2024 Yen carry trade unwind. The pair briefly climbed to a high of 151.03 before plunging to a low of 146.935.

In the week ahead, traders should prepare for heightened volatility, with crucial economic data from Japan and the US influencing market sentiment.

Will Japan’s Wage Growth Signal a BoJ Rate Hike?

On Monday, March 10, Japan’s wage data will impact Bank of Japan policy. Economists forecast average cash earnings to rise 3.2% year-on-year in January, down from 4.8% in December.

A lower-than-expected reading could temper expectations for an H1 2025 BoJ rate hike. Lower wages may dampen consumer spending and demand-driven inflation. Conversely, an unexpected spike in average cash earnings could fuel speculation about a BoJ move.

Japan’s wage growth is a key consideration for the Bank of Japan. Last week, Rengo, Japan’s largest trade union center, reported that unions are pushing for a 6.09% wage hike, the highest in over 30 years.

Did January’s Wage Growth Surge Boost Household Spending?

Japan’s average cash earnings soared 4.8% in December, suggesting a sharp rise in household spending. Household spending data on Tuesday, March 11, will offer further insights into consumer demand.

Economists expect household spending to increase 3.6% year-on-year in January after a 2.7% rise in December. A higher reading could fuel demand-driven inflation, bolstering bets on an H1 2025 BoJ rate hike. Conversely, weaker household spending may temper expectations of a BoJ policy move.

Japan’s GDP and Private Consumption in Focus

While wage growth and household spending trends are crucial, Japan’s economic backdrop may affect the BoJ’s policy outlook. According to the preliminary report, Japan’s GDP grew by 2.8% year-on-year in Q4 2024, up from 2.4% in the previous quarter. External demand and resilient private consumption contributed to the momentum pick-up.

A higher finalized GDP reading and an upward revision to private consumption may signal a more hawkish BoJ stance. Japan’s macroeconomic environment influences consumer sentiment and spending trends, affecting demand-driven inflationary pressures.

However, a downward revision may shift focus to Japan’s Shunto wage negotiations.

Producer Prices and Inflation Outlook

On Wednesday, March 12, Japan’s producer prices will give insights into inflation trends. Economists expect producer prices to rise 4% in February, slowing from January’s 4.2%.

Softer producer prices may indicate weaker inflation. Economists view producer prices as a leading inflation indicator as producers adjust prices based on demand, passing higher costs or cost savings on to customers. Conversely, a higher reading could drive bets on tighter monetary policy.

Potential USD/JPY Moves

Key economic data from Japan and BoJ commentary will affect the USD/JPY pair’s price trends.

• Bullish Yen Scenario: Higher wages, rising household spending, and increasing producer prices could boost bets on a BoJ rate hike, pushing USD/JPY toward 145.
• Bearish Yen Scenario: Lower wages, weaker household spending, and softer producer prices could dampen BoJ rate hike expectations, driving the pair toward the 149.358 resistance level.

BoJ Policy Outlook: What Do the Polls Say?

A recent Reuters poll showed economists expecting Japan’s economy to expand in line with preliminary data in Q4 2024, supporting a near-term BoJ rate hike.

In February, a Reuters poll revealed all 61 surveyed economists expected the BoJ to keep interest rates at 0.5% in March. However, 19 of the 61 forecast at least one 25-basis point hike in Q2 2025, while 38 of 58 economists predict a move in July or September.

US Inflation to Impact Fed’s Policy Stance

US economic data will also play a key role in USD/JPY price action. Key reports include:s

• JOLTS Job Openings (March 11).
• CPI Report (March 12).
• Producer Prices (March 13)
• Initial Jobless Claims (March 13).
• University Survey of Consumers (March 14).

Tuesday’s upcoming US JOLTS Job Openings could give further insights into the US labor market. Economists expect job openings to drop from 7.6 million in December to 7.5 million in January. Lower-than-expected job openings indicate a cooling labor market, supporting a more dovish Fed rate path. Conversely, rising job openings may suggest a lower unemployment outlook, tempering Fed rate cut bets.

Meanwhile, the US CPI Report will be crucial for the Fed. Economists forecast the annual inflation rate to soften to 2.9% in February, down slightly from 3% in January.

Softer-than-expected inflation could cement bets on a June Fed rate cut, impacting US dollar demand. Conversely, a higher inflation reading may signal a delay in Fed rate cuts, driving US dollar demand.

However, producer price trends will also require consideration on March 13. Softer producer prices would support a more dovish Fed policy stance, while higher prices could lower Fed rate cut bets.

Shifting to the US labor market and consumer sentiment, initial jobless claims and the Michigan Consumer Sentiment Index also need consideration.

A spike in jobless claims and a fall in consumer sentiment could indicate weaker wage growth and spending. A pullback in consumer spending may soften demand-driven inflationary pressures. However, another drop in claims and improving sentiment may delay Fed rate cuts.

A more hawkish Fed may push USD/JPY toward 150, while dovish signals could trigger a drop toward 145.

Short-term Forecast:

In the coming week, USD/JPY trends will hinge on:

• Japan’s Economic Data: Wage growth and inflation remain crucial for the BoJ rate path.
• US Reports: Inflation, labor market, and consumer sentiment to affect Fed rate cut bets
• Geopolitical risks: US tariff developments could impact market sentiment.

USD/JPY Price Action

Daily Chart

After last week’s declines, the USD/JPY sits well below the 50-day and the 200-day EMAs, sending bearish price signals.

A USD/JPY break above the 149.358 resistance level would support a return to 150. A breakout from 150 could enable the bulls to target the 200-day and 50-day EMAs.

Conversely, a break below last week’s low of 146.935 could signal a drop toward 145. A fall through 145 would bring the 140.309 support level into sight.

The 14-day Relative Strength Index (RSI) at 33.86 indicates a USD/JPY fall below 147 before entering oversold territory (RSI below 30).

Final Thoughts

With BoJ policy shifts, Fed rate expectations, and global trade tensions in focus, USD/JPY traders should brace for volatility. Real-time data, central bank commentary, and geopolitical developments will influence price action in the days ahead. For deeper insights, check out our in-depth technical analysis here.