USD/JPY Analysis: Bulls shrug off positive Japan wage hike data amid BoJ/Fed uncertainty

The USD/JPY pair attracts fresh buyers following an intraday dip to the 147.25-147.20 region, albeit lacks follow-through and remains below the weekly top touched the previous day. The Japanese Yen (JPY) started losing positive traction after Bank of Japan (BoJ) Governor Kazuo Ueda said that the central bank will scrutinize whether a positive wage-inflation cycle emerges before deciding that conditions for phasing out stimulus are falling into place. This comes on the back of Ueda's overnight remarks that the BoJ will seek an exit from easy policy when achievement of 2% inflation is in sight and smashes hopes for a possible shift in the policy stance next week. Apart from this, the underlying bullish sentiment around the equity markets undermines the safe-haven JPY and acts as a tailwind for the currency pair.

Investors, however, seem convinced that another substantial pay increase by Japan's biggest companies will clear the way for the BoJ to end its negative interest rates in the coming months. In fact, Japan’s largest umbrella group for unions, Rengo, said that its affiliated members demanded an average wage increase of 5.85% this year, which, in turn, marks the biggest rise in around 31 years. Moreover, Toyota, GS Yuasa, Nissan Motor, Nippon Steel and Hitachi have already responded to the Union's wage hike demand in full. This, in turn, acts as a tailwind for the JPY. The US Dollar (USD), on the other hand, continues with its struggle to attract any meaningful buyers amid the uncertainty over the Federal Reserve's (Fed) rate-cut path. This turns out to be another factor that contributes to capping the USD/JPY pair.

The US consumer inflation for February came in a bit warmer than expected and fuelled speculations that the Fed may delay interest rate cuts in the near term. The markets, however, are still pricing in around a 70% chance that the US Central Bank will start cutting interest rates at the June policy meeting. This, in turn, triggers a fresh leg down in the US Treasury bond yields and keeps the USD bulls on the defensive, warranting some caution before positioning for any meaningful appreciating move for the USD/JPY pair. Traders might also refrain from placing aggressive directional bets and prefer to wait on the sidelines ahead of next week's key central bank event risks. The BoJ will announce the highly-anticipated decision on Tuesday, which will be followed by the FOMC policy update on Wednesday.

Technical Outlook

From a technical perspective, the USD/JPY pair has been showing some resilience below the 38.2% Fibonacci retracement level of the December-February rally. The subsequent move up, however, struggled to find acceptance above the 100-day Simple Moving Average (SMA) and faltered ahead of the 23.6% Fibo. level. Moreover, oscillators on the daily chart are still holding deep in the negative territory and are still away from being in the oversold zone. This, in turn, supports prospects for the emergence of some selling around the 148.00 round figure and remain capped near the 148.35-148.40 region. The latter should act as a key pivotal point, which if cleared decisively will suggest that the recent sharp pullback from the 152.00 neighbourhood has run its course and allow spot prices to reclaim the 149.00 mark.

On the flip side, weakness below the Asian session low, around the 147.25-147.20 region, is likely to find some support near the 147.00 mark ahead of the 38.2% Fibo. level, around the 146.80 zone. This is closely followed by the monthly trough, around the 146.50-146.45 area and the 200-day SMA, currently pegged near the 146.25 region. Some follow-through selling, leading to a subsequent break below the 146.00 mark will be seen as a fresh trigger for bearish traders and pave the way for deeper losses. The USD/JPY pair might then aim to test the 50% Fibo. level, around mid-145.00s before eventually dropping to the 145.00 psychological mark.