AUD/JPY rises above 95.50 following disappointing Japan’s Labor Cash Earnings

AUD/JPY gains as disappointing wage data heightens economic concerns in Japan.
Japan’s Labor Cash Earnings climbed 2.5% YoY in June, though came below the expected 3.2% increase.
Australia’s Ai Group Manufacturing PMI rose by 4.9 points, while the Industry Index improved by 5.8 points in July.

Akhtar Faruqui FXStreet

AUD/JPY extends its gains for the second consecutive day, trading around 95.70 during the Asian hours on Wednesday. The currency cross rose as the Japanese Yen (JPY) faced challenges following disappointing wage data, which fueled renewed economic concerns in Japan.

Japan’s Labor Cash Earnings rose 2.5% year-on-year in June, following the previous increase of 1%. The reading indicated the fastest pace in four months, but came below market expectations of 3.2%. The data raised doubts about the near-term prospects for rate hikes, as the Bank of Japan (BoJ) continues to grapple with weak wage growth, persistent inflation, and ongoing global trade uncertainty.

The AUD/JPY cross appreciates as the Australian Dollar (AUD) receives support following the release of improved domestic economic data. Australia’s Ai Group Industry Index improved 5.8 points to -3.2, its strongest reading in three years. The reading indicated a gradual recovery trend in private-sector activity. Meanwhile, the Ai Group Manufacturing PMI rose by 4.9 points to -23.9 in July, indicating a slight improvement but still pointing to a deep contraction in the sector.

Additionally, the AUD/JPY cross appreciates as the risk-sensitive AUD gains ground from improved risk appetite amid rising bets on an interest rate cut by the US Federal Reserve (Fed) in September. Markets continued to reflect over a 90% probability of a Fed rate cut in September, with roughly 60 basis points of total easing expected by year-end.

Economic Indicator

Labor Cash Earnings (YoY)

This indicator, released by the Ministry of Health, Labor and Welfare, shows the average income, before taxes, per regular employee. It includes overtime pay and bonuses but it doesn't take into account earnings from holding financial assets nor capital gains. Higher income puts upward pressures on consumption, and is inflationary for the Japanese economy. Generally, a higher-than-expected reading is bullish for the Japanese Yen (JPY), while a below-the-market consensus result is bearish.

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