The Japanese yen is showing limited movement on Tuesday. In the North American session, USD/JPY is trading at 148.56, down 0.09%.
Japan released mixed data on Monday. Average Cash Earnings for December rebounded with a 1% gain, following a 0.2% gain in November. This was a strong reading but missed the market estimate of 1.3%. Household Spending can’t find its footing and posted a 10th straight decline, at -2.5% y/y. This followed the 2.9% drop in November and missed the market estimate of -2.1%.
Wage growth has become a key indicator as the Bank of Japan has stressed the need for higher wages before it will lift interest rates out of negative territory. The Bank hasn’t raised rates since 2007 and such a move would be a sea-change in monetary policy. The positive wage growth report is further evidence of stronger wage growth and there is speculation that the BoJ might could hit the rate trigger as soon as the April meeting. Japan’s annual wage negotiations started in January and there are reports that workers will win substantial wage hikes, which would raise expectations of a policy shift by the BoJ.
In the US, the Federal Reserve jumped on the rate-cut bandwagon in December but has continued to push back against market expectations. After the December meeting, the markets were licking their chops and priced in an initial rate cut in March but those expectations have steadily fallen as the US economy continues to perform well. Last week’s sizzling nonfarm payrolls was the latest example of the strength of the US economy. The Fed rate odds of a rate cut in March have fallen to 16%, while a June cut has been priced in at 95%, according to the CME FedWatch tool.
- USD/JPY is testing support at 148.62. Below, there is support at 148.33
- There is resistance at 148.96 and 149.25