The USDJPY was stronger after Japan’s wage growth fell, likely ending hopes for imminent rate hikes from the BOJ.
USDJPY – Daily Chart
The USDJPY had tumbled to around 140.00, but a recent pullback saw the pair trading at 146.12. The coming weeks will determine whether this is a bounce or a return to the uptrend.
The yen tumbled after Japan’s labour ministry said that November headline wage growth for Japanese workers slowed sharply, ending hopes for an imminent BOJ rate hike. The Bank of Japan has been seeking evidence of a virtuous cycle linking pay hikes to price increases as a green light for changing its monetary policy.
However, the latest wage growth showed real wages had crashed by 3%, the biggest drop on record, and much deeper than the consensus call for a 2% drop and a drop from October’s -2.3%.
BOJ Governor Kazuo Ueda has been monitoring wage trends for signs there will be enough momentum to achieve its goal of 2% inflation on a sustainable basis. With the latest wage growth data, Japan may be forced to do even more policy easing by year-end.
Bloomberg added: “while Wednesday’s figures will back the rationale for keeping policy settings ultra-easy this month, they aren’t likely to deter economists from predicting a rate hike in coming months.”
In the near term, the BOJ will look again at the annual wage negotiations, which are expected to culminate in March. While Japan’s largest labour union federation urges companies to raise wages by at least 5%, the recent data suggests that any pressure for companies to hike wages is gone.
Governor Ueda said last month that it would be possible for authorities to make some decisions even if they don’t have the full results of pay discussions from smaller firms, which may not come until the summer. Those remarks added to speculation that the likely timing of a BOJ hike would be the April monetary policy meeting.
“The current situation is that wages haven’t caught up with prices,” said Harumi Taguchi, S&P Global Market Intelligence economist. “Given the strong impacts of the base effect from the previous year and the weakness in some sectors, I don’t believe we are in a virtuous cycle yet.” She added that she still sees an exit from negative rates in April at the earliest.
