Japanese nominal pay grew by 3.8% year-over-year in August, surpassing the 3.7% forecast, but this was a slowdown from July, and real wage growth decelerated for a second consecutive month to 1.5% [1]. Despite the stronger-than-expected wage data, the Japanese Yen weakened, with USD/JPY trading near 158.00, effectively round-tripping to its pre-release level after briefly reaching its highest since September 25 [1]. The same data release revised July's nominal pay growth down to 4.3% from 4.7%, a downward revision four times the size of the August beat [1].
Prime Minister Takaichi announced plans to cut the consumption tax on food without issuing new bonds, while the 10-year Japanese government bond yield remained near 3.11%, close to its highest in three decades [1]. Finance Minister Katayama and US Treasury Secretary Bessent both described the Yen as undervalued in late September, and the FOMC minutes recorded a coordinated currency intervention by the New York Fed and Japan on July 31 when USD/JPY was just under 164.00 [1].
The Bank of Japan's policy rate stands at 1.25% following the September 18 hike, compared to the US Federal Reserve's 3.75%-4.00% range [1]. Futures markets assign about a 71% probability to another BoJ rate hike by December, while both the Fed and BoJ have similar odds (near 17%) of hiking at their respective late October meetings [1]. Technical analysis indicates that USD/JPY faces resistance at 158.50 and 159.00, with support at 157.50 and the 200-day EMA just under 158.00 [1]. The bias remains long as long as 157.50 holds on a closing basis, but a daily close below 157.00 would negate this view [1].
Looking ahead, Friday's University of Michigan survey will provide US inflation expectations data, which could influence Fed rate hike bets and, in turn, impact USD/JPY [1]. The overall market reaction suggests that despite positive wage data, the slowing trend and lack of imminent BoJ action have left the Yen vulnerable to broader dollar movements and policy divergence [1].
CONCLUSION
Despite Japanese wage growth beating forecasts, the Yen failed to strengthen, reflecting market focus on slowing wage momentum and persistent policy divergence with the US. With no immediate shift in BoJ policy expected, USD/JPY remains sensitive to US data and rate expectations, keeping the Yen under pressure.