USD/JPY Forecast: Impact of Wage Talks on BoJ Policy Unfolds

USD/JPY Movement on Wednesday

The USD/JPY rose by 0.07% on Wednesday. Following a 0.48% gain on Tuesday, the USD/JPY ended the session at 147.751. The USD/JPY fell to a low of 147.232 before rising to a Wednesday session high of 148.046.

Wage Negotiations and the Bank of Japan in Focus

On Thursday, updates on wage negotiations will garner investor interest. Toyota Motor Corp. (7203) announced it gave factory workers the highest pay increase in 25 years. Economists consider Toyota Motor Corp. the benchmark for annual wage negotiations. The news supported expectations of substantially higher pay across the country.

Significantly, substantial pay hikes could enable the Bank of Japan to exit negative rates. Higher wages could increase disposable income and household spending. An upward trend in household spending could fuel demand-driven inflation.

A Bank of Japan pivot from negative rates could deliver price stability. Comments from the Bank of Japan may influence bets on a March pivot. However, investors must wait until Friday for the official wages report.

Rengo, the Japanese Trade Union Confederation (JTUC), will release the first set of wage agreements on Friday, March 15. The report is timely, with the Bank of Japan monetary policy meeting starting on March 18.

US Economic Calendar: Producer Prices and Retail Sales

On Thursday, US retail sales and producer prices may impact investor bets on an H1 2024 Fed rate cut.

Upward producer price trends signal an improving demand environment. Producers raise prices in response to increased demand pressures, passing higher prices onto consumers. A higher-for-longer Fed rate path could reduce disposable income. Downward trends in disposable income could impact demand and pressure producers to lower prices.

Economists forecast producer prices to increase by 1.1% year-on-year in February after rising 0.9% in January.

With inflation in focus, consumer spending trends also need consideration. Upward trends in consumer spending could fuel demand-driven inflation. A higher-for-longer Fed rate path may reduce disposable income, curb consumer spending, and dampen demand-driven inflation.

Economists forecast retail sales to increase by 0.8% in February after falling by 0.8% in January.

Other stats include weekly jobless claims. However, barring an unexpected spike in jobless claims, the focus will be on producer prices and retail sales.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on US data, wage negotiations in Japan, and the Bank of Japan. Weaker-than-expected US data and BoJ support for a pivot from negative rates could tilt monetary policy divergence toward the Yen. The wage report on Friday could be pivotal.

USD/JPY Price Action

Daily Chart

The USD/JPY hovered below the 50-day EMA while remaining above the 200-day EMA, sending bearish near-term but bullish longer-term price signals.

A breakout from the 50-day EMA and the 148.529 resistance level could give the bulls a run at the 151.685 resistance level. However, selling pressure could intensify at the 148.529 resistance level. The 50-day EMA is confluent with the resistance level.

BoJ reaction to wage negotiations and the US economic calendar need consideration.

Conversely, a USD/JPY drop below the 147.500 handle would bring the 145.891 support level and the 200-day EMA into play.

The 14-day RSI at 40.73 indicates a USD/JPY drop to the 145.891 support level before entering oversold territory.