Japanese yen rises on strong wage growth data | 05 February 2025

USDJPY:

The Japanese Yen (JPY) is attracting fresh buyers after data released during Wednesday's Asian session showed a rise in real wages in Japan, confirming bets that the Bank of Japan (BoJ) will raise interest rates again. This is significantly at odds with expectations that the Federal Reserve (BoJ) will cut borrowing costs twice before the end of this year. As a result, the narrowing rate differential between Japan and the U.S. will support yen yields.

In addition, the weakening U.S. dollar (USD) led the USD/JPY pair to fall to mid 153.0, or the lowest level since December 18, in the last hour. Meanwhile, investors remain concerned that Japan could also be targeted by US President Donald Trump's trade tariffs. This, along with a risk-on sentiment, could deter traders from making new bullish bets on the safe-haven yen. Nevertheless, the fundamental backdrop supports the outlook for further yen strength.

The Japanese yen hit a one-month high against the US dollar amid expectations of a Bank of Japan rate hike. Expectations of further narrowing of the rate differential between Japan and the US also support the yen.

Trading recommendation: Trade mainly with Sell orders from the current price level.

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