Chart of the day - USDJPY (10.01.2024)

Japanese yen is the weakest G10 currency today, following release of wage growth data for November. The report showed labor cash earnings growing by just 0.2% YoY in November, marking a big deceleration from 1.5% YoY reported for October, as well a big miss compared to 1.5% YoY expected. Adjusted for inflation, real cash earnings declined 3.0% YoY (exp. -2.0% YoY). Disappointing wage data is driving JPY weakening today and pushes USDJPY 0.4% higher on the day.

Bank of Japan has been looking for years for a robust wage growth, that would support inflation and allow it to exit an ultra-loose monetary policy. While inflation has indeed experienced post-pandemic acceleration, failure to see growth in real wages risks making any inflation progress short-lived. Prices growing faster than wages will ultimately lead to a drop in consumer spending and demand within the economy. However, there are also some positive to the wage report. Namely, it was reported that a wage gauge that excludes changes in sampling actually showed nominal wages grow 2.0% YoY while base pay for regular workers, excluding sampling changes, was 1.9% YoY higher. This was the quickest pace of base pay growth since 1990s, a welcome development. Nevertheless, a rather lackluster headline wage growth data may encourage Bank of Japan to wait with its policy pivot.

Taking a look at USDJPY chart at D1 interval, we can see that the pair managed to bounce over 3% off a local low reached on December 28, 2023. Bulls are making another attempt at breaking above the 145.00 resistance zone, marked with 200-session moving average (purple line) and previous price reactions. The first attempt to break above was made last week, but buyers failed to hold onto the gains. A point to note is that USDJPY managed to break above the previous local high and paint a higher local low, suggesting that the downtrend structure has been broken. Nevertheless, a break above the aforementioned 200-session moving average would be needed to confirm the bullish outlook.

Source: xStation5