The Japanese yen is seeing some bullish activity after a slight drop during Asian trading on Thursday. However, there’s a noticeable lack of strong conviction from buyers, largely due to mixed signals in the market. The yen seems to be gaining from an increasing belief that the Bank of Japan will maintain its policy course, alongside worries about potential interventions. On the other hand, the US dollar is feeling the pressure from dovish expectations surrounding the Federal Reserve, which limits the gains for the USD/JPY pair to about 157.00.
Additionally, data released today shows that real wages in Japan declined in November at the fastest rate since January of last year. This uncertainty, particularly regarding when the Bank of Japan might raise interest rates next, is making yen supporters hesitant to push hard for a rally. Investors are also inclined to hold off until they receive more information on the Federal Reserve’s plans for rate cuts, which could lead to even steeper losses for the dollar. As a result, Friday’s US Non-Farm Payrolls (NFP) report is anticipated to significantly impact the USD/JPY dynamic.
Uncertainty among Japanese yen bulls regarding interest rate hikes
- A government report indicated that Japan’s average nominal wage experienced a year-on-year rise of just 0.5% in November, the slowest growth since December 2021. More troubling was the 2.8% fall in real wages, adjusted for inflation, which marks the 11th consecutive month of decline.
- This data reinforces the trend of inflation outpacing wage growth, which poses a challenge for the Bank of Japan, hinting that further interest rate increases might be on the table if economic indicators remain consistent. Indeed, Bank of Japan Governor Kazuo Ueda mentioned that wages and prices are likely to rise together.
- Despite this, there’s a sense among market participants that the Bank of Japan will tighten its monetary policy further. This is notably in contrast to the narrative growing around the US Federal Reserve potentially supporting the low-yielding yen by lowering borrowing costs around March and considering additional cuts throughout the year.
- Meanwhile, mixed economic data from the US has not significantly altered dovish Fed expectations, which has swayed the dollar’s two-day upward trend and kept the USD/JPY pair stable. The Institute for Supply Management reported a rise in the Nonmanufacturing Purchasing Managers Index to 54.4 in December from 52.6 the previous month.
- However, the rebound in the US service sector activity was negated by a labor market report that didn’t inspire confidence. The Automatic Data Processing (ADP) Institute revealed that private sector employment increased by 41,000 in December, following a drop of 29,000 in November (which had been revised from -32,000) and slightly missing the forecast of 47,000.
- In addition, the Job Openings and Labor Turnover Survey (JOLTS) indicated there were 7.146 million job openings at the end of November, down from 7.449 million in October (which was also revised down) and below the expected 7.6 million. This trend hints at diminishing labor demand.
- Despite these factors, traders seem hesitant to take strong bearish positions on the dollar, preferring to wait for the US Nonfarm Payrolls (NFP) report on Friday, which will shed light on the Fed’s future rate cut strategy and consequently influence USD fluctuations while impacting the USD/JPY pair.
USD/JPY continues to range as it finds support around 156.35-156.25
The 100-period simple moving average (SMA) on the 4-hour chart has been gradually increasing, indicating a persistent bullish sentiment, with the USD/JPY pair trading above it. This SMA stands at 156.22 now, serving as a near-term support level. A bullish crossover is observed on the MACD, with the MACD line moving above the signal line near the zero mark, reflecting a slight momentum increase. The Relative Strength Index (RSI) is at 58, just above the neutral midline of 50, signaling a modest bullish trend.
An upward trend line from 155.30 is supporting the current rally, with support seen around 156.36. If the price stays above this level, it could signal a stronger position for buyers. Conversely, if the USD/JPY pair breaks below the trend line and the ascending 100-period SMA, it could diminish momentum and hint at potential consolidation.
(The technical analysis in this story was developed with AI tools)
