Japanese Yen Forecast: USD/JPY, EUR/JPY, and GBP/JPY in Play Ahead of BOJ

USD/JPY, EUR/JPY, and GBP/JPY Key Points

• The BOJ is arranging to end its negative interest rate policy, per a Jiji report, after strong wage growth.
• USD/JPY is consolidating ahead of Fed and BOJ meetings next week – all eyes on 148.00.
• EUR/JPY and GBP/JPY have bounced to start the week but are now testing near-term resistance levels.

Japanese Yen Fundamental Analysis

The long-awaited results from the Japan’s spring wage negotiations are winding down, and the results are generally what the BOJ wanted to see to exit its ultra-accommodative monetary policy.

At a high level, Japanese companies agreed to the biggest pay raises in over 30 years, with an average increase of more than 4%, surpassing last year's 3.6% increase. This is significant because smaller companies, which employ the majority Japanese workers, usually give smaller raises.

Looking at specific unions, UA Zensen reported the largest pay rises since 2013, with full-time workers seeing a 5.9% increase and part-timers 6.5%. These hikes are even higher than those demanded by Rengo, Japan's largest union group, showing a widespread trend towards higher wages.

These wage increases could push the Bank of Japan (BOJ) to rethink its negative interest rate policy, especially if higher wages help achieve sustainable inflation closer to the 2% target. The BOJ's decision hinges on these wage trends, indicating a possible shift in Japan's economic policy.

Indeed, as we go to press, Jiji is reporting that the BOJ is arranging an end to its negative interest rate policy (NIRP) at its meeting next week. While past “leaks” from the BOJ have ultimately led to disappointment, the central bank has been highlighting the importance of wage discussions for months now, so traders have more confidence that we’ll finally see a shift from BOJ Governor Ueda and company.

Japanese Yen Technical Analysis – USD/JPY Daily Chart

Source: TradingView, StoneX

Turning our attention to the charts, the current price action in USD/JPY can only be described as “consolidative.” Early in North American trade, the currency pair is working on its second consecutive “inside day,” despite plenty of fundamental catalysts over the past 12 hours, from the wage negotiations to the BOJ leaks to a bout of mixed-but-generally-solid US economic data.

Moving forward, traders will be watching to see if rates can break the 148.00 handle to open the door for a rally into the mid-149.00s, but with the odds of a BOJ move next week growing, a drop toward the week’s lows near the 38.2% Fibonacci retracement of the 2024 rally near 146.80 may be more likely.

Japanese Yen Technical Analysis – EUR/JPY Daily Chart

Source: TradingView, StoneX

Looking next to EUR/JPY, the technical levels to watch are relatively clear. As I noted on Twitter yesterday, EUR/JPY is testing a key near-term resistance level from the underside of the previous bullish trend line and the 50% retracement of the March drop near 162.00. Meanwhile, immediate support sits at the weekly lows at 160.25.

While short-term traders may look to take advantage of swings within the week’s range, the bigger opportunity may be to wait for a breakout beyond those levels and follow the trend that emerges, especially with major catalysts like the wage negotiation outcome and BOJ meeting scheduled over the next week.

Japanese Yen Technical Analysis – GBP/JPY Daily Chart

Source: TradingView, StoneX

Finally, the price action in GBP/JPY looks relatively bullish compared to its yen-cross rivals. The volatile currency pair did see its upside momentum stall with an incremental “lower high” at the start of the month, leading to the current pullback, but rates remain above key previous-resistance-turned-support at 188.25, a level that coincides with the shallow 23.6% Fibonacci retracement of the year-to-date rally.

As long as that key level holds as support, longer-term traders may maintain a bullish bias on the pair, with potential for a retest of February’s 8-year high above 191.00

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter: @MWellerFX