USD/JPY Forecast: Wage Trends Fuel Yen Strength Amid Fed Rate Cut Bets

USD/JPY Movement on Wednesday

The USD/JPY fell by 0.46% on Wednesday. Following a 0.32% loss on Tuesday, the USD/JPY ended the session at 149.346. The USD/JPY rose to a high of 150.084 before falling to a Wednesday session low of 149.092.

Labor Market Data Supports BoJ Pivot from Negative Rates

On Thursday, labor market data from Japan garnered investor interest. Overtime pay and average cash earnings supported bets on an April Bank of Japan pivot from negative rates.

Overtime pay increased by 0.4% year-on-year in January after falling 0.7% in December. Significantly, average cash earnings rose by 2% year-over-year in January after rising by 1% in December. Economists forecast average cash earnings to increase by 0.5%.

The pickup in wages could fuel consumer spending and drive demand-driven inflation. Upward wages and household spending trends would enable the BoJ to exit negative rates to ensure price stability.

Significantly, the wage data coincides with spring wage negotiations, pivotal for BoJ plans to exit negative rates. The USD/JPY responded to the data, falling to an early low of 149.075.

With wages in focus, investors must also consider BoJ chatter. Views on wages, inflation, and the timeline to exit negative rates could move the dial.

US Economic Calendar: The Fed and Jobless Claims in Focus

On Thursday, US jobless claims data warrants investor attention. After weaker-than-expected labor market data on Wednesday, a spike in jobless claims could fuel bets on an H1 2024 Fed rate cut.

Economists forecast initial jobless claims to remain at 215k in the week ending March 2, 2024.

A weaker labor market environment could impact wage growth and lower disposable income. Downward trends in disposable income could affect consumer spending plans and dampen demand-driven inflation. A softer inflation environment may allow the Fed to cut interest rates to support demand and avoid a hard landing.

While the numbers need consideration, Fed Chair Powell will deliver a second day of testimony. The second session tends to yield few surprises. Nonetheless, investors must consider deviation from the Wednesday script. FOMC member Loretta Mester is also on the calendar to speak. Views on the timeline for a rate cut could move the dial.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on wage negotiations in Japan and the US Jobs Report. A weaker-than-expected US Jobs Report jump in wages in Japan could tilt monetary policy divergence toward the Yen. The Fed is eying rate cuts, while the BoJ is considering a pivot from negative rates.

USD/JPY Price Action

Daily Chart

The USD/JPY hovered above the 50-day and 200-day EMAs, sending bullish price signals.

A USD/JPY breakout from the 149.500 handle would bring the 150.201 resistance level into play.

BoJ chatter, US jobless claims, and Fed commentary need consideration.

However, a drop below the 149 handle would support a fall to the 50-day EMA (148.564) and the 148.405 support level.

The 14-day RSI at 47.13 suggests a USD/JPY drop below the 148 handle before entering oversold territory.

4-Hourly Chart

The USD/JPY sat below the 50-day and 200-day EMAs, sending bearish price signals.

A USD/JPY break above the 200-day EMA would support a move toward the 50-day EMA and the 150.201 resistance level.

However, a drop below the 149 handle would give the bears a run at the 148.405 support level.

The 14-period 4-hour RSI at 23.59 shows the USD/JPY in oversold territory. Buying pressure could intensify at the 149 handle.