Japan’s April Wage Growth Boosts Rate Hike Bets, Yen Set to Extend the Rising Trend Since Year Start

TradingKey - Inflation pressure in Japan is on the rise, with data showing that Japan's basic wages increased by 2.2% year-on-year in April, up from a revised 1.4% in March. The acceleration in basic wage growth is a positive signal for the Bank of Japan, which is seeking opportunities to raise interest rates. The Japanese yen has continued to strengthen this year, with the USD/JPY exhibiting a fluctuating downward trend, which may continue, seeking support at the 140.00 level.

Japan's basic wages grew by 2.2% year-on-year in April, surpassing the revised 1.4% in March. However, nominal wages increased by 2.3%, falling short of economists' expectations of 2.6%. A more stable wage trend indicator shows that the wages of full-time workers rose by 2.5%, remaining above 2% for the twentieth consecutive month.

A key factor driving wage growth is the persistently tight labor market. The Bank of Japan has noted that, in the context of labor shortages and limited supply, the speed of nominal wage growth may remain elevated for some time.

Additionally, major Japanese companies agreed to an average wage increase of over 5% during the annual spring wage negotiations in March, with some of these wage hikes already taking effect in April. Officials from the Ministry of Health, Labour and Welfare indicated that the newly reached wage agreements will gradually be reflected in future wage statistics.

In contrast, the U.S. economy has shown weak performance, with the Federal Reserve's Beige Book indicating that the economy experienced a recent contraction, hiring has slowed, and inflation expectations have risen. Tariff policies have exacerbated uncertainty for businesses and households. Employment has stabilized in most regions, with some industries experiencing layoffs, and prices are rising moderately, but significant pressure is anticipated in the future.

Federal Reserve Governor Lisa Cook stated that there are already signs that changes in trade policy are beginning to affect the economy, and the pace of economic activity is expected to slow compared to last year. The market widely anticipates that the Federal Reserve will keep the benchmark interest rate unchanged in the range of 4.25% to 4.50% at its June policy meeting.

Technical Analysis of USD/JPY

Source: Mitrade  USD/JPY Trend

From a technical perspective, USD/JPY is exhibiting a fluctuating downward trend, continuing the bearish pattern that has been in place since January of this year, with overall momentum appearing weak. On the daily chart, USD/JPY remains within a descending channel; however, the moving averages are converging, indicating a balance of power between bulls and bears. The KD indicator shows both lines positioned below 50 but moving horizontally, suggesting that USD/JPY may continue to fluctuate downward, with support at the 140.00 level.

The initial resistance level for USD/JPY on the upside is at 145.00, with further resistance at 147.00 and a key resistance level at 149.00. On the downside, the initial support level is at 141.00, with further support at 139.00, and a crucial support level at 138.00.