The Japanese Yen (JPY) got whipsawed following the significantly higher trade union wage hikes. Economists at BBH analyze Yen’s outlook.

Significant higher trade union wage hikes

Japan’s Rengo, the largest trade union, agreed on total pay increases averaging 5.28% in 2024. This is up from 3.8% in 2023 and higher than the 4.1% rise expected by a Bloomberg survey of economists. 

The probability implied by interest rate futures (OIS) of a 10 bps Bank of Japan (BoJ) policy rate hike next week rose briefly to a high around 70% before settling back down around 60%. 

In our view, Japan’s improving inflation backdrop and soft economic activity suggest the BoJ is unlikely to normalise the policy rate by more than is currently priced-in over 2024 (25 bps total rate hikes). As such, USD/JPY will likely remain well supported above its 200-DMA at 146.39.