Ella 
The yen strengthened against the dollar on Wednesday, but lacked follow-through and remained near year-to-date lows hit a day earlier. Real wages in Japan fell for the 21st consecutive month in December and household spending fell for the 10th consecutive month, an unwelcome development for the Bank of Japan (BoJ). This, coupled with the basically bullish tone in global stock markets, prevents traders from going long on the safe-haven currency yen again.
However, market participants appear to believe wage growth this year could exceed that of 2023 and pave the way for the Bank of Japan to exit a decade of ultra-easy monetary policy. In addition, the risk of further escalation of geopolitical tensions in the Middle East and concerns about China’s economic slowdown have also become “tailwinds” for the yen. Coupled with an overnight pullback in U.S. Treasury yields, the U.S. dollar (USD) continues to trade below its highest level in nearly three months hit earlier this week, weighing on USD/JPY.
Meanwhile, recent upbeat U.S. macro data, including Friday’s jobs report, suggest the U.S. economy remains resilient, which should allow the Federal Reserve to keep interest rates higher for longer. Additionally, recent hawkish comments from several Fed officials should act as a tailwind for U.S. bond yields and support the prospect of some dollar dip buying. In turn, caution is warranted before any meaningful declines in USD/JPY ahead of the Fed’s speech later in the North American session.
