The Yen round-trips after Japanese pay beats its forecast

Japanese pay grew faster than expected in August, yet the Yen weakened nonetheless, with the USD/JPY pair trading near 158.00, a level it last reached since September 25. Nominal pay rose 3.8% year-over-year, slightly below the 3.7% forecast, and real wage growth decelerated to 1.5% for the second consecutive month. The revised July figure dropped to 4.3% from 4.7%, a reduction that four times the size of the previous month's increase.

The Bank of Japan (BoJ) cited the faster wage growth as justification for further interest rate hikes, but the trend of slowing pay did not spur a rate hike earlier. Consequently, USD/JPY is likely to follow the dollar side of the pair throughout October. Prime Minister Fumio Kishida announced on Tuesday her intention to cut the consumption tax on food without issuing new bonds.

The 10-year Japanese government bond yield stayed close to 3.11% on Wednesday, near its highest in three decades. Rising yields driven by budget concerns rather than interest rate expectations can weaken a currency rather than strengthen it. Finance Minister Taro Aso and US Treasury Secretary Janet Yellen expressed concerns over the Yen's undervaluation in late September.

The Federal Open Market Committee (FOMC) minutes released on Wednesday mentioned the New York Fed's currency intervention for the Treasury, the yen purchase made alongside Japan on July 31, when USD/JPY was around 164.00. The BoJ's current policy rate is 1.25%, following a September 18 hike, while the Fed's rate range is 3.75%-4.00%.

Futures indicate a roughly 71% probability of another BoJ rate hike by December. The Federal Reserve and BoJ both have about a 17% chance of a rate hike in October. On Friday, the University of Michigan (UoM) survey, released at 14:00 GMT, will include U.S. households' one-year inflation expectations, which stood at 4.6% last month.

A higher figure would bolster Fed rate hike expectations, leading to an uptick in USD/JPY. Resistance: The previous high of 158.50, just above the current level, was the highest since September 25 and was abandoned within the same trading session. Support: The 200-day Exponential Moving Average (EMA), currently below every daily close since October 1, acts as support.

The long position remains intact as long as the price holds above the 157.50 level, which was touched by a pip on Wednesday. The Stochastic Relative Strength Index (Stoch RSI) on the daily chart has transitioned from approximately 85 to near 80, suggesting that a decline toward 157.50 would align with the expected trend. A daily close falling below 157.00 would signal a potential shift away from the long position.