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USDJPY rebound in focus as Japan wages jump


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USDJPY recovery comes into question as surge in Japan wages highlight case for further downside

BG_jpy_yen_japan_234324234234.pngSource: Bloomberg
 
 

 Joshua Mahony | Senior Market Analyst, London | Publication date: Tuesday 07 February 2023 

Japanese wages surge, shifting the tone after NFP volatility

USDJPY has managed to fight back against the recent downtrend, breaking higher towards the back end of last week. Interestingly, this comes some days after the Federal Reserve laid out a somewhat hawkish stance that many would have expected to bring such upside for the dollar. However, market scepticism around those FOMC comments were undermined on Friday when a bumper jobs report provided the basis for the Fed to continue on this tightening path.

Today has seen Japanese nominal wages for December grow by the fastest pace since 1997, driving speculation that the BoJ will look to tighten policy once Governor Haruhiko Kuroda leaves his post in April. Below we can see how the shift in relative inflation rates between the USA and Japan has led to recent declines for USDJPY. Largely that is a reflection of shifting expectations as the Federal Reserve moves towards their terminal rate, and the Bank of Japan potentially edging towards taking concrete steps to arrest the rise in inflation. With that differential between inflation levels continuing to fall, there is a case for continued weakness in USDJPY going forward.

USJAPANCPI070223.png

The wage differential has closed entirely after todays release from Japan, with the two countries seeing opposite trajectories of late. The relationship against the USDJPY Pair is less well correlated, but it makes sense that higher wages would ultimately lead to higher inflation. Meanwhile, it also provides a shift in sentiment that could drive USDJPY.

USJAPANWAGES070223.png

USDJPY rebounds into Fibonacci resistance

The fact that we have seen Japanese wages spike sharply higher brings the focus back to the story of rising inflation in the region, with USDJPY on the back foot today as a result. The downtrend does remain intact despite the trendline break that occurred last week, with the 76.4% Fibonacci resistance level providing a potential turning point of note here. A rise through the 134.77 resistance level would bring about a bullish reversal signal. However, the theme continues to remain bearish until these levels are cleared out.

USDJPY-Daily-2023_02_07-11h53.pngSource: ProRealTime
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