USD/JPY approaches 148.00 as Japanese wages soften

• USD/JPY rose towards 147.70, seeing 0.30%.
• The USD is retreating, and the DXY Index is consolidating after reaching a multi-month high of 105.15.
• Japan revealed soft GDP and Earning figures so the BoJ won’t be urged to pivot.

The USD/JPY increased on Friday towards 147.70 after Japan reported soft data during the Asian session, and the pair is set to close a 1% weekly gain. On the USD side, it is retreating, consolidating its weekly gains, but the DXY index continues to trade at multi-month highs.

Datawise, no relevant data will be released for either country for the rest of the session. On the US side, the focus is on next week’s Consumer Price Index (CPI) figures from August, which will be important for the Federal Reserve (Fed) regarding the November and December decisions. 

As for now, economic activity in the US has shown to remain resilient, driven by a strong Services sector, while the labour market, via the Nonfarm Payrolls, showed a mixed outlook, with job creation accelerating while wage inflation picked up in August. It's worth reminding readers that the Federal Reserve (Fed) chairman Jerome Powell has stated that the bank expects the economy to cool down and that it will maintain its restrictive monetary policy as long as inflation does not back away.

According to the CME FedWatch tool, the odds for a 25 basis point (bps) hike in November and December stand near 40%, and rate cuts are seen between June and July 2024.

On the JPY’s side, the Japanese Cabinet Office revealed that the country's Gross Domestic Product (GDP) growth for the second quarter was 1.2% on a quarterly basis, down from the previous reading of 1.5% and below expectations of 1.3%. On an annual basis, the growth rate was 4.8%, down from 6% and missing the market consensus of 5.5%. Lastly, Japanese Labor Cash Earnings for July, closely watched by the Bank of Japan, increased by 1.3%, matching expectations, but was lower than the 2.3% seen in the previous reading.

The BoJ has been lately signalling that unless wage and inflation figures meet their forecasts, they will maintain their dovish stance and monetary policy divergences may continue acting as a tailwind for the pair.

USD/JPY Levels to watch 

 With both Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) comfortably placed in positive territory on the daily chart, the USD/JPY buyers hold the upperhand. However, indicators are approaching overbought conditions, which could lead to a healthy technical correction in the near term. Moreover, the pair is above the 20,100,200-day Simple Moving Average (SMA), indicating a commanding position for the bulls in the bigger picture.

 Support levels: 146.00, 144.80, 144.00.

 Resistance levels: 148.00, 148.50, 149.00.

USD/JPY Daily Chart