The Japanese Yen (JPY) struggled to extend its modest Asian-session uptick on Monday, despite wage data reinforcing expectations for a potential December rate hike by the Bank of Japan (BoJ). The cautious market tone continues to support the safe-haven currency, while dovish Federal Reserve (Fed) expectations keep the US Dollar (USD) pinned near Friday’s three-week lows.
JGB Yields Hold Near Multi-Year Highs As Rate Gap Narrows
Rising BoJ rate-hike expectations and renewed fiscal concerns have pushed Japanese Government Bond (JGB) yields toward multi-year highs. The narrowing rate differential between Japan and other major economies is providing an additional tailwind for the lower-yielding JPY. Still, investors remain reluctant to take aggressive positions ahead of Wednesday’s highly anticipated FOMC decision.
Yen Bulls Hesitant Despite Stronger Wage Data
Data released Monday showed Japan’s Nominal Wages rising 2.6% YoY in October, beating expectations of 2.2% and marking the strongest increase in three months. However, real wages fell for the tenth consecutive month, declining 0.7% YoY due to a 3.4% increase in consumer prices.
The mixed data increases pressure on the BoJ amid growing speculation of another December hike and lent the JPY a modest lift during the Asian session. The reaction was limited, though, by revised Q3 GDP figures showing a sharper-than-expected economic contraction. Japan’s economy shrank 0.6% for the quarter versus an initial 0.4% estimate, while annualized GDP fell 2.3%, the weakest print since Q3 2023.
Despite the soft growth outlook, investors remain convinced that sustained wage growth could bolster household spending, drive demand-led inflation, and support the broader economy. BoJ Governor Kazuo Ueda recently noted increasing confidence in meeting the Bank’s economic and price projections.
In parallel, Prime Minister Sanae Takaichi’s reflation-focused policies and large-scale fiscal programs helped lift the 10-year JGB yield to its highest level since 2007, while 20-year and 30-year yields climbed to highs not seen since 1999 – providing further support for the JPY.
Dovish Fed Bets Keep USD/JPY Under Pressure
According to the CME FedWatch Tool, markets are pricing in nearly a 90% probability that the Fed will cut rates again on Wednesday. This continues to weigh on the USD and pressures USD/JPY.
However, traders may avoid aggressive bearish positions until the Fed releases updated economic projections, including the Dot Plot, followed by Chair Jerome Powell’s press conference.
USD/JPY Technical Outlook: Bearish Bias While Below 100-Hour SMA
USD/JPY has repeatedly failed to break above the 100-hour Simple Moving Average (SMA), reinforcing a bearish near-term outlook. Hourly technical indicators remain in negative territory, signaling potential downside, though neutral daily oscillators call for caution.
A break below Friday’s swing low near 154.35 could expose the 154.00 psychological level.
On the upside, meaningful recovery attempts will face resistance at the 155.35 area — the 100-hour SMA. A break above the mid-155.00s may trigger short-covering and pave the way toward 156.00, followed by 156.60–156.65 and ultimately the 157.00 handle.
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