USD/JPY Fundamental Daily Forecast – Japan Real Wages Rise, But There are Still Risks to the Economic Recovery

The Dollar/Yen is edging higher early Tuesday after failing to follow-through to the downside, following a steep sell-off the previous session. The Forex pair likely retreated on Monday after investors failed to respond to bullish U.S. economic news from Friday and earlier in the session.

The dollar sank to its lowest level against the Yen since March 30, moving in tandem with retreating Treasury yields from recent peaks despite signs of a robust U.S. economic recovery.

At 04:18 GMT, the USD/JPY is trading 110.311, up 0.132 or +0.12%.

The U.S. 10-year Treasury yield drifted lower on Monday as stocks hit record highs on the back of strong economic data. The weakness in yields came as the Dow and S&P 500 set record highs on Monday.

The U.S. services purchasing managers’ index from the Institute for Supply Management showed faster than expected expansion in March, and the reading of 63.7 was the highest on record. This was on top of Friday’s U.S. Non-Farm Payrolls report that showed 916,000 added jobs. This was more than analysts expected and marked the fastest growth since August 2020. The unemployment rate declined to 6%.

That good news should’ve driven U.S. Treasury yields higher, and consequently the U.S. Dollar. The price action suggests the bullish outlook had been priced into the greenback, at least over the short-run.

Japan Real Wages Eke Out First Rise in a Year as COVID-19 Hits Prices

Japan’s real wages rose for the first time in a year in February, the government said on Tuesday, largely due to prices weakening as the coronavirus pandemic continued to weigh on the economy.

The health crisis and steps taken to keep it in check are having a big impact on the world’s third-largest economy, which is expected to have contracted in the first quarter due to weakening consumer spending.

Inflation-adjusted real wages, a key measure of households’ purchasing power, rose 0.2% in February compared with the same month a year earlier, the labor ministry said on Tuesday.

It was the first rise in inflation-adjusted real wages in 12 months, after a revised 0.6% decline in January. But nominal total cash earnings dropped 0.2% in February from a year earlier, down for the 11^th straight month, following a revised 1.3% decline in January.

“Since the fall in prices was larger than the drop in wages, it (February inflation-adjusted wages) turned positive,” a health ministry official said.

Japan’s Soft Household Spending, Wages Signal Prolonged COVID-19 Economic Strains

Japan’s household spending dropped for a third straight month in February, data showed on Tuesday, as emergency curbs to prevent the spread of the coronavirus hurt consumption and raised the risk of a more prolonged and bumpier economic recovery.

Household spending dropped 6.6% in February from a year earlier, after a 6.1% decline in January and compared with a median forecast for a 5.3% fall, government data showed.

For a look at all of today’s economic events, check out our economic calendar.