A look at USDJPY

Japanese yen is one of the worst performing G10 currencies today after erasing earlier gains. JPY gained during the Asian session on some risk-off flows but has given back those gains since, which is somewhat puzzling. Why? There are 2 reasons. 

Firstly, it was announced that minimum hourly wage in Japan will be hiked by around 4.2% in fiscal 2023/2024 - the biggest increase in years. This is important because Japan has struggled to achieve its inflation target and even as CPI is above BoJ's target right now, such a situation is not expected to last. Bigger increase to minimum wage growth has a chance to boost price growth in the economy.

Secondly, Kyodo reported that Japan's Ministry of Finance increased the assumed long-term interest rate for fiscal year 2024/2025 from 1.10% to 1.50%. It is said that the upward revision to the forecast is driven by BoJ decision to tweak policy and allow for greater deviation from target yield. While it does not mean that the Bank of Japan will embark on policy tightening and rate hikes soon, it is a hawkish development.

Having said that, today's weakening of Japanese yen is somewhat strange. Taking a look at USDJPY chart at D1 interval, we can see that the pair trading higher today, erasing almost all of the losses made on Friday. Another test of the resistance zone ranging below 78.6% retracement of the downward impulse launched in October 2022 cannot be ruled out. However, the upper limit of the bullish channel runs slightly above this resistance therefore bulls may struggle to extend gains even if they manage to break above the aforementioned 78.6% retracement.

Source: xStation5