USD/JPY Forecast: Rengo Wage Report to Dictate the Fate of the Yen

USD/JPY Movement on Thursday

The USD/JPY gained 0.37% on Thursday. Following a 0.07% rise on Wednesday, the USD/JPY ended the session at 148.294. The USD/JPY fell to a low of 147.428 before rising to a Thursday session high of 148.357.

Rengo Wage Report and the Bank of Japan in the Spotlight

On Friday, Rengo, the Japanese Trade Union Confederation (JTUC), will release the 2024 wages report. The report will detail the outcome of wage negotiations between Japanese firms and trade unions. Early indications are that Japanese firms met trade union demands, agreeing to the largest wage hikes in decades.

Substantial wage hikes could fuel bets on a March Bank of Japan pivot from negative rates.

The BoJ has been vocal about the need for significant wage hikes to fuel household spending and demand-driven inflation. A pickup in demand-driven inflationary pressure would allow the BoJ to exit negative rates to deliver price stability.

With the Rengo wage report in focus, Bank of Japan commentary also needs monitoring. Reaction to the Rengo report could influence buyer demand for the USD/JPY.

US Economic Calendar: Consumer Sentiment and Inflation Expectations

On Friday, the Michigan Consumer Sentiment Index and sub-components warrant investor attention. An unexpected increase in the Consumer Sentiment Index could further reduce bets on an H1 2024 Fed rate cut.

Upward consumer confidence trends could fuel consumer spending and demand-driven inflation. A higher-for-longer Fed rate path may reduce disposable income. Downward trends in disposable income could impact consumer spending and dampen demand-driven inflation.

Economists forecast the Michigan Consumer Sentiment Index to remain at 76.9 in March. Beyond the headline number, investors must also consider the sub-components, including inflation expectations.

Other stats include NY Empire State Manufacturing and industrial production numbers. However, these will likely play second fiddle to the Michigan Consumer Sentiment survey.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on US consumer sentiment and the Rengo Wage Report. A pickup in US consumer sentiment could delay the timing of a Fed rate cut. However, decades high wage hikes could fuel bets on a BoJ pivot from negative rates and a USD/JPY drop toward 140.

USD/JPY Price Action

Daily Chart

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

A break above the 50-day EMA and the 148.529 resistance level would support a move toward the 151.685 resistance level. Selling pressure may intensify at the 148.529 resistance level. The 50-day EMA is confluent with the resistance level.

The Rengo wage report, BoJ reaction to the wage report, and US consumer sentiment numbers need consideration.

Conversely, a USD/JPY fall through the 147.500 handle could give the bears a run at the 145.891 support level and the 200-day EMA.

The 14-day RSI at 46.24 suggests a USD/JPY fall to the 145.891 support level before entering oversold territory.