USD/JPY Daily Forecast: Japan Wage Growth, US Data, and 141

Japan’s Wage Growth and BoJ Rate Path

On Thursday, September 5, wage growth figures from Japan put the USD/JPY pair and the Bank of Japan rate path in focus.

Average cash earnings increased by 3.6% year-on-year in July, down from 4.5% in June.

The higher-than-expected wage growth could intensify speculation about a Q4 2024 BoJ interest rate hike. Higher wages typically increase disposable income, possibly fueling household spending and demand-driven inflation. A BoJ rate hike would raise borrowing costs, reducing disposable income and possibly curbing household spending.

Recent inflation figures from Japan have raised bets on a Q4 2024 rate hike. The Japanese Yen remains sensitive to wage growth trends. Higher-than-expected numbers could therefore push the USD/JPY down toward 141.

Expert Views on Inflation and BoJ Rate Path

Taro Kimura, economist at Bloomberg Economics, reacted to Friday’s inflation numbers from Tokyo, reportedly stating,

“The surprisingly sharp run-up in Tokyo’s August inflation will surely catch the Bank of Japan’s eye and, we think, puts a rate hike on the table for the October meeting. The report provides clear evidence that solid pay rises are feeding into consumer prices.”

US Economic Calendar

Later in the session on Thursday, the focus will shift to the US labor market and services sector.

ADP Employment Change

Economists predict the ADP will report a 145k employment rise in August, following an increase of 122k in July.

A higher-than-expected employment rise could ease investor jitters about a hard US economic landing (recession). Tighter labor market conditions may support wage growth, likely boosting consumer spending, which accounts for over 60% of GDP.

Positive employment data could lower the chances of a 50-basis point September Fed rate cut, boosting US dollar demand.

Initial Jobless Claims

Economists forecast initial jobless claims to drop slightly from 231k in the week ending August 24 to 230k in the week ending August 31. A larger-than-expected fall could further allay concerns about a hard landing.

Expert Views on the US Labor Market and the Fed Rate Path

On Monday, The Kobeissi Letter, an industry-leading commentary on the global capital markets, stated,

“Further evidence higher unemployment is coming: US consumers’ perceptions of the labor market have weakened to the worst level since 2021. […] In previous business cycles, has been a leading indicator for unemployment. It now suggests that the unemployment rate may increase toward 5.5% in coming months. The labor market is trending toward a recession.”

Better-than-expected US labor market data may push the USD/JPY toward 145.

ISM Services PMI

In addition to the labor market, services sector data will also require consideration, as it accounts for over 70% of GDP.

Economists forecast the ISM Services PMI to drop from 51.4 in July to 51.1 in August.

A lower-than-expected PMI could retrigger recession fears, possibly dragging the USD/JPY down toward 141. Investors should consider subcomponents, including job creation rates and prices. Downward job creation and input price trends may increase speculation about a 50-basis point September Fed rate cut.

Expert Views on the US Services Sector

S&P Global Market Intelligence Chief Business Economist Chris Williamson commented on the preliminary Markit survey-based figures, stating,

“The solid growth picture in August points to robust GDP growth in excess of 2% annualized in the third quarter, which should help allay near-term recession fears.[…]. Service sector growth is constrained by hiring difficulties, which continue to push up pay rates and means overall input cost inflation remains elevated by historical standards.”

Williamson added that while inflation is slowly returning to normal levels, economic imbalances could still slow growth.

Short-term Forecast: Bearish

USD/JPY trends will hinge on the US services sector PMIs and labor market data. Weaker-than-expected figures could fuel speculation about a 50-basis point Fed rate cut, possibly sending the USD/JPY down toward 141.

However, wage growth figures from Japan will be pivotal to the BoJ rate path.

Investors should remain alert. Monitor real-time data, central bank insights, and expert commentary to adjust your trading strategies accordingly. Stay updated with our latest news and analysis to manage USD/JPY volatility.

USD/JPY Price Action

Daily Chart

The USD/JPY remained well below the 50-day and 200-day EMAs, affirming bearish price signals.

A USD/JPY break above the 145.891 resistance level may support a move toward 146.5. Furthermore, a return to 146.5 could give the bulls a run at the 148.529 resistance level.

Wage growth data from Japan, US labor market data, and US services sector PMI numbers require consideration.

Conversely, a break below the 143.495 support level could signal a fall toward the 141.032 support level.

The 14-day RSI at 35.35 suggests a USD/JPY drop below 143 before entering oversold territory.