In early trading on Thursday (October 12th) in the Asian market, the US dollar/yen continued to maintain momentum after successfully regaining the 149 level. The minutes of the US Producer Price Index (PPI) and Federal Open Market Committee (FOMC) meetings failed to provide a meaningful boost to the US dollar, and the foreign exchange market held off interest rates while waiting for the arrival of US Consumer Price Index (CPI) data. A significant increase will lead to traders flooding into the US dollar in the short term, and inflation data will continue to be the main driving force for the market in the second half of this trading week. Technical analysis shows that the short-term target for the US dollar/yen is 149.60.
The US PPI data generally exceeded market expectations, and the latest meeting minutes released by the Federal Reserve failed to stimulate interest in firm buying of the US dollar. Japan's PPI fell from 0.3% to -0.3% in September, while machinery orders in August are expected to rebound from -1.1% last month to -0.5%.
Although Japan's largest trade union federation achieved its largest salary increase in 30 years this year, Bank of Japan Governor Kazuo Shibata may hope to see more evidence of sustained wage growth before announcing the new monetary policy. Rengo, the Japanese Federation of Trade Unions, usually releases a strategic outline for the next round of spring salary negotiations in mid October. This year, the company will release a basic plan on October 19th, which includes a wide range of salary increase targets.
These initial goals are usually very ambitious. In 2022, the organization proposed seeking a 5% increase in total salary during the spring negotiations, which is higher than the 4% target set in previous years, and the 5% target includes a 3% increase in basic salary. The sustained or escalating demand will indicate that, from the perspective of labor, the existing pressure of wage increases will continue to exist. If this cannot be achieved, the central bank may be more cautious.
Japanese Prime Minister Fumio Kishida is also promoting sustainable salary increases to improve income distribution. He may consider extending or strengthening subsidies to companies that raise wages to maintain the momentum after strong growth this year. He ordered the team to formulate economic measures before the end of this month, which may include provisions to support wage growth, especially for small companies.
According to insiders on Tuesday, the Bank of Japan is considering raising its inflation forecast for the fiscal year to March next year from the current 2.5% to nearly 3%. Sources said that the upward correction will reflect a price increase that exceeds expectations, as well as an increase in crude oil prices, while the depreciation of the yen has also pushed up import prices.
The Bank of Japan plans to release a new economic and price outlook report at the end of its two-day policy meeting as of October 31st.
The US CPI inflation data will be a major showdown on Thursday, and the market expects the overall CPI annualized data for September to slightly decrease from 3.7% to 3.6%. In the coming months, inflation expectations and the possibility of a domestic economic recession in the United States will continue to rise, and a significant increase in consumer price index in the United States will lead to a large influx of investors into the US dollar in the short term.
USD/JPY Technology Outlook
FXStreet analyst Joshua Gibson said that the US dollar/yen rose 0.6% from this week's low, but the intraday price trend found itself hovering along the 200 hour Simple Moving Average (SMA), and the number that short-term buyers can beat will be last week's price trend, with a peak slightly below 149.60.
The US dollar/Japanese yen remains firmly in the bullish zone for a longer period of time, and the daily candlestick is still well supported by the 50 day moving average near 147.00 and the 200 day moving average far below the current price, reversing the bullish trend to the 139.00 level.
