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5 Jun 2024

USD/JPY rebounds on positive risk sentiment, weak Japanese wage data

  • USD/JPY is recovering after finding support on the 50-day SMA. 
  • A positive market mood and weak Japanese real wage data are supporting the pair. 
  • Rumors the BoJ could cut bond purchases – a move that would support the Yen – are a headwind for the pair. 

USD/JPY bounces off the 50-day Simple Moving Average (SMA) and pumps higher as the US Dollar (USD) continues its resurrection after the recent post-ISM Manufacturing PMI miss sell-off. The pair is trading above 156.00 on Wednesday, up 0.8% on the day. 

USD/JPY bulls are further encouraged by a weakening Japanese Yen (JPY) following data that shows real wages declining for the 25th straight month in April as domestic inflation in Japan continues to outpace wage growth. The data will make it harder for the Bank of Japan (BoJ) to normalize policy, as it hopes to lift the bank’s policy rate from an ultra-low 0.0% - 0.1% range and support its beleaguered currency. 

Indeed, both the safe-haven JPY and Swiss Franc (CHF) are falling on Wednesday as market morale improves. Most European equity indexes are trading higher and in the commodity sphere, Oil, softs and precious metals are up but non-precious metals and lumber are down. 

Rumors that the Bank of Japan (BoJ) is poised to reduce its bond purchases at its June policy meeting benefited JPY (negative for USD/JPY) on Tuesday. Such a move would put upward pressure on Japanese bond yields which are highly correlated to the JPY. However, it remains to be seen whether the rumors materialize on the day.  

The risk of intervention is also a constant threat to USD/JPY bulls. On Tuesday, Deputy Governor of the BoJ Ryozo Himino repeated concerns about how a weak JPY could negatively impact the economy. His comments suggested the BoJ might be preparing for another direct intervention in Forex markets to prop up JPY (negative for USD/JPY).

Himino also discussed how the weak Yen was impacting inflation. Although it drove up the price of imported goods, thereby generating inflation – which is what the BoJ wants – Himino said. This is not the sort of inflation the BoJ wishes to encourage as it makes imported goods unaffordable for ordinary shoppers. The BoJ would prefer inflation from higher wages instead as this would lead to more spending and a more dynamic economy. 

According to analysts at Rabobank, Himino’s remarks “ratcheted up concerns that the BoJ could confront the market with a hawkish policy move at its June 14 policy meeting.” 

USD/JPY seems unfazed by US jobs data on Wednesday, after Automatic Data Processing (ADP) released its payrolls figures for the private sector. The data showed payrolls increased by only 152K which was below the 173K forecast and the revised down 188K of April. 

US ISM Services PMIs is also out on Wednesday whilst on Friday, The US Bureau of Labor Statistics will release US Nonfarm Payrolls (NFP) which could be a major USD mover. 

If the US data is weak in line with the general trend of late, it could undo the USD/JPY’s recovery rally and plunge the pair back down below 155.00 again. 

Jun 5, 2024

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