Japanese Yen Weekly Forecast: Bears Eye 145 as Markets Focus on Wages and Household Spending
Original article by Bob Mason, repurposed and expanded for clarity and depth.
Overview
The Japanese yen (JPY) continues to face significant downward pressure against major currencies. Its value is approaching levels that historically trigger concern among Japanese policymakers and global investors alike. In recent sessions, the USD/JPY has climbed toward the 145 mark, a level last seen in late 2022 when the Bank of Japan (BoJ) intervened in the currency market to curb the yen’s weakness.
This weekly analysis examines the fundamental factors impacting the Japanese yen and outlines how upcoming economic data, particularly related to wages and household spending, could influence investor sentiment and monetary policy expectations.
Recent Yen Performance and Key Drivers
– The Japanese yen has depreciated more than 10% against the US dollar in 2024.
– As of the end of last week, USD/JPY hovered near 144.50, nearing the psychologically and politically important 145.00 level.
– The current bearish pressure on the yen is being driven by the widening policy divergence between the Federal Reserve and the Bank of Japan.
– The BoJ remains committed to its ultra-loose monetary policy, including negative interest rates and yield curve control, while the Federal Reserve maintains higher rates, underpinned by persistent inflationary concerns.
– Market expectations have also shifted after a series of strong US economic reports, which suggest the Fed could delay any rate cuts until later in 2024 or even into 2025.
Bank of Japan’s Monetary Policy and Impact on the Yen
The BoJ continues to be a global outlier in its monetary policy stance. Despite external pressure and internal debates, Governor Kazuo Ueda has reiterated a cautious approach to tightening.
– The BoJ’s policy rate remains in negative territory (-0.1%), standing in stark contrast to the US federal funds rate, which is currently in the 5.25%-5.50% range.
– The central bank has maintained its yield curve control policy, which targets the 10-year Japanese government bond (JGB) yield near 0%, although some flexibility has been introduced over the past year.
– BoJ officials have indicated that a clear, sustainable rise in wages and inflation is necessary before any adjustment to policy tools is made.
This policy asymmetry places continued downward pressure on the yen, particularly as US Treasury yields rise and diverge further from Japanese yields.
Upcoming Economic Data: Wages and Household Spending
Markets are closely watching upcoming Japanese economic reports, particularly wage growth and household spending data. These indicators are critical for the BoJ, as they form a foundation for assessing inflation sustainability and consumers’ capacity for higher prices.
Key Reports to Watch
1. Average Cash Earnings (Scheduled Release: July 7)
– This report measures changes in total monthly earnings, including bonuses and overtime, paid to workers.
– May’s data showed a modest 1.0% year-on-year increase, far below the expectations of economists and far from the level required to justify monetary tightening.
– Analysts are now looking for a stronger showing in the June report.
– A weak print could reinforce existing dovish expectations and pressure the yen anew.
2. Household Spending (Scheduled Release: July 7)
– Reflects changes in monthly expenditures by households and serves as an important gauge of domestic demand strength.
– April’s figure surprised markets with a 1.2% annual decline, signaling continued consumer caution despite moderate inflation and loose financial conditions.
– Rebound is hoped for, but even a modest recovery may not be enough to shift BoJ policy expectations.
Wage Growth and Inflation: The Missing Link
Japan’s inflation outlook has improved modestly, with core CPI running above the BoJ’s 2% target for over a year. However, sustainability remains in question without corresponding wage gains.
BoJ Governor Kazuo Ueda has repeatedly
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