Japanese Yen edges higher on upbeat wages data, hawkish BoJ Minutes and soft USD

USD/JPY ticks lower during the Asian session on Wednesday, though it lacks bearish conviction.
Hawkish BoJ bets lend support to the JPY on the back of the recent US-Japan joint intervention.
US-Iran peace deal hopes and receding Fed hike bets undermine the USD, capping spot prices.

Haresh Menghani FXStreet

The USD/JPY pair struggles to capitalize on this week's solid bounce from the 155.25-155.20 area, or the lowest level since early May, and edges lower during the Asian session on Wednesday. Spot prices, however, lack follow-through selling and hold just above mid-157.00s amid mixed cues.

Government data released earlier today showed that real wages in Japan grew for the sixth consecutive month, by 1.6% in June, and backs the case for more interest rate hikes by the Bank of Japan (BoJ). Adding to this, Minutes from the BoJ's June 15-16 meeting revealed that the board voted 7-1 to raise the policy rate by 25 basis points (bps) to around 1.0%, or the highest level since 1995, amid the upside risk to inflation. This, along with the recent US-Japan joint intervention, offers some support to the Japanese Yen (JPY) and acts as a headwind for the Japanese Yen (JPY).

Meanwhile, investors remained hopeful for a diplomatic resolution to end a five-month-old US-Iran war after Secretary of the Treasury Scott Bessent said that the US and Iran were nearing an agreement. Bessent further told CNBC that a deal to reopen the Strait of Hormuz was imminent. The optimism dragged crude oil prices to a nearly four-week low, easing inflation fears and tempering US Federal Reserve (Fed) rate-hike bets. This keeps the safe-haven US Dollar on the back foot and is turning out to be another factor that contributes to capping the upside for the USD/JPY pair.

The JPY bulls, however, seem hesitant amid concerns about Japan's worsening fiscal situation. In fact, Japan's ruling Liberal Democratic Party (LDP) backed a proposal to cut the food consumption tax from 8% to 1% for two years starting in April 2027. Adding to this, the Japanese government proposed roughly ¥600 billion a year in cash transfers targeted at low- and middle-income households as part of a relief package. However, the lack of a clear funding mechanism is seen as the key concern, which keeps a lid on the JPY and should limit losses for the USD/JPY pair.

Apart from this, the persistently wide interest rate differential between Japan and other major economies, including the US, might continue to fuel the so-called JPY carry trade and support the currency pair. Traders now look forward to the US economic docket, featuring the release of the ADP report on private-sector employment and the ISM Services PMI, for some impetus later during the North American session. The focus, however, will remain on the closely-watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report, due on Friday.

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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