The US Dollar (USD) continues its strong rally against the Japanese Yen (JPY), with USD/JPY climbing past 151.00 and reaching an eight-month high near 153.00. According to FX analysts at Brown Brothers Harriman (BBH), the pair is now poised to test the 155.00 level, driven by a combination of political and economic factors weighing on the Yen.
Yen Slips on Political Shift and Weak Wage Growth
Markets are reacting to expectations that incoming Prime Minister Sanae Takaichi will favor continued fiscal stimulus, echoing the legacy of former PM Shinzo Abe. Her pro-stimulus stance has sparked concerns that Japan’s monetary tightening cycle could be slowed or disrupted.
Adding to the bearish pressure on the Yen was disappointing wage data for August, which came in well below expectations:
- Nominal cash earnings rose just 1.5% year-on-year, missing the 2.7% consensus and marking a sharp drop from July’s downwardly revised 3.4%.
- Scheduled pay for full-time workers remained stagnant at 2.4%, versus expectations of 2.5%.
BBH notes that Japan’s wage growth is not contributing significantly to inflation, given sluggish productivity growth of around 0.7% annually. These figures undermine hopes for a more aggressive Bank of Japan (BOJ) normalization path.
BOJ Still Likely to Hike on October 30
Despite the weak earnings data and market skepticism, BBH maintains its call for a 25 basis point rate hike at the BOJ’s upcoming October 30 meeting. The Tankan business survey indicates continued recovery in real GDP, while core inflation is making steady progress toward the BOJ’s 2% target.
Currently, the swaps market is pricing in less than a 30% chance of a rate hike to 0.75%, reflecting doubts about the BOJ’s willingness to tighten amid soft wage data and political change.
Technical Outlook: Path to 155.00 Opens
BBH admits it underestimated the breakout potential of USD/JPY:
“We expected USD/JPY to top out near 151.00 — we were wrong. The pair decisively broke through key resistance, setting the stage for a test of the 155.00 level.”
Summary:
- USD/JPY climbs to 8-month highs near 153.00, with momentum toward 155.00.
- Takaichi’s likely appointment as Prime Minister raises stimulus expectations.
- Weak August wage data adds to doubts about aggressive BOJ policy tightening.
- BOJ still seen hiking rates on October 30, despite market skepticism.