Japanese Yen weakens vs. USD as wage data fuels BoJ policy doubts

The Japanese Yen (JPY) remains on the defensive against its American counterpart for the third straight day after data released earlier this Thursday showed that Japan’s real wages fell in November at the fastest pace since last January. This comes on top of the uncertainty over the likely timing of the next Bank of Japan (BoJ) rate hike and acts as a headwind for the JPY. The US Dollar (USD), on the other hand, preserves its weekly gains and turns out to be another factor supporting the USD/JPY pair.

That said, the growing acceptance that the BoJ will stick to its policy normalization path, along with intervention fears, might hold back the JPY bears from placing aggressive bets. Apart from this, rising geopolitical tensions temper investors’ appetite for riskier assets and should contribute to limiting losses for the safe-haven JPY. Furthermore, dovish US Federal Reserve (Fed) expectations might keep a lid on the USD and benefit the lower-yielding JPY, which should cap the upside for the USD/JPY pair.

Japanese Yen remains on the defensive as weak wage growth adds to BoJ rate hike doubts

• A government report published this Thursday showed that average nominal wages, or total cash earnings, in Japan rose 0.5% from a year earlier in November, marking the slowest pace since December 2021. Additional details revealed that inflation-adjusted real wages fell for the 11th consecutive month, by 2.8% during the reported month.
• The data suggested that the underlying trend of inflation outpacing wage growth has not changed and poses a challenge for the Bank of Japan, which signalled that it would raise rates further if economic and price developments move in line with forecasts. In fact, BoJ Governor Kazuo Ueda said this week that wages and prices are likely to rise together.
• Nevertheless, market participants seem convinced that the BoJ will tighten the monetary policy further. This marks a significant divergence in comparison to rising bets that the US Federal Reserve would lower borrowing costs again in March and deliver another rate cut later this year, which might continue to benefit the lower-yielding Japanese Yen.
• Meanwhile, Wednesday’s mixed US economic data did little to temper dovish Fed expectations, which, in turn, might keep a lid on a two-day-old US Dollar uptrend and cap the USD/JPY pair. The Institute for Supply Management reported that its Non-Manufacturing Purchasing Managers’ Index increased to 54.4 in December from 52.6 in the previous month.
• An unexpected pickup in the US services sector activity, however, was offset by unimpressive US labor market reports. In fact, the Automatic Data Processing (ADP) Research Institute reported that private-sector employment rose by 41K in December. This reading followed the 29K fall (revised from -32K) in November and was slightly weaker than the 47K expected.
• Separately, the Job Openings and Labor Turnover Survey (JOLTS) showed that the number of job openings on the last business day of November stood at 7.146 million. This followed the 7.449 million openings recorded in October (revised from 7.67 million) and came in below the market expectation of 7.6 million, suggesting that demand for labor continued to ebb.
• Traders, however, seem reluctant to place aggressive USD bearish bets and opt to wait for the release of the US Nonfarm Payrolls (NFP) report on Friday. The crucial employment details would offer more cues about the Fed’s future rate-cut path, which, in turn, will influence the USD price dynamics and provide some meaningful impetus to the USD/JPY pair.

USD/JPY bulls have the upper hand while above the 156.35-156.25 confluence support

The 100-period Simple Moving Average (SMA) on the 4-hour chart edges higher, underscoring a steady bullish bias, with the USD/JPY pair holding above it. The 100-period SMA currently stands at 156.22, offering nearby dynamic support. A bullish crossover emerges on the Moving Average Convergence Divergence (MACD) as the MACD line climbs above the Signal line near the zero level, while a modestly positive histogram suggests improving momentum. The Relative Strength Index (RSI) prints at 58, above the 50 midline, reinforcing a mildly bullish tone.

The rising trend line from 155.30 underpins the advance, with support aligning near 156.36. Holding above that base would keep buyers in control and preserve the upward bias. Should the USD/JPY pair remain above both the trend line and the rising 100-period SMA, the path of least resistance points higher; a close back below the trend line would ease momentum and signal a consolidative phase.

(The technical analysis of this story was written with the help of an AI tool)