USD/JPY Prepares for Potential U-Turn as Japanese Wages Surge

The Japanese yen has summoned its inner samurai and made a remarkable comeback against the US dollar, as seen with the USD/JPY pair this week. The secret behind its newfound strength? A stunning display of wage growth in Japan, not seen since the 90s.

Meanwhile, the dollar seems unfazed, lounging near a one-year high despite the Federal Reserve’s meeting minutes failing to create any immediate market ripples.

Yen’s Resurgence Ignited by Soaring Wages

According to data from Rengo, Japan’s umbrella trade union group, wages across the nation have soared by an average of 3.5% in the early months of this year. While it falls slightly short of the 1993 record-breaking figure of 3.9%, this growth spurt is no small feat.

Meanwhile, the Bank of Japan (BoJ) must be feeling accomplished right about now. For years, they’ve battled tirelessly to achieve sustainable inflation and demand-led growth, resorting to ultra-loose monetary policies, negative interest rates, and more asset purchases.

While this impressive wage growth is a step in the right direction, it’s not quite enough to convince the BoJ to sheathe its monetary stimulus sword just yet.

USD/JPY Teeters on the Edge

The USD/JPY pair finds itself in a nail-biting situation, hovering near neutral levels after a failed attempt to conquer the resistance at 145.00. Technical indicators are whispering words of bearish reversal, hinting at a potential pullback in the pipeline.

However, caution is the name of the game. Analysts have called on traders to be cautious around the 145.00 level given its significance.

If you don’t watch FX, I’d like to draw your attention to USDJPY. Currently, it looks like a classic bubble and $145 is a HUGE level. Why is it that important? Well, it is the funding currency. So a reversal or breakout here could set the tone in broad risk. pic.twitter.com/84baEY6bkr

— Julian Brigden (@JulianMI2) June 30, 2023

Support and Resistance Levels

The next support levels for USD/JPY are identified at 143.50 and 142.00, while the subsequent resistance levels are at 145.00 and 146.00.