Today markets have been calm as traders await the US CPI inflation report to be released tomorrow. Asian markets were closed for the Lunar New Year, which drained most of the demand during the European session as well. There were no major announcements on the docket today, investors are holding back as we prepare for the main event tomorrow.

Bank of Japan Remain on Hold Until Wages Pick Up

The USD has been stable today after the retreat last week. USD/JPY slipped lower to approximately 149.00 on a little decrease in treasury yields, but it has bounced back up to 149.30s now. On Friday, the Japan Times published an article discussing pay growth trends in Japan. Japanese corporations are expected to hike compensation for employees around March-April, with Nomura Holdings considering a 16% wage increase for younger employees.

Significantly, progress toward wage increases might boost the BoJ’s aim to shift away from negative interest rates, so the market is very interested in this. The Bank of Japan’s views on wages and intentions to hike interest rates will shift the dial, turning the JPY bullish and sending USD/JPY lower toward 140 again. Recent wage growth data may persuade the Bank of Japan to abandon negative interest rates.

But until then, there’s plenty of time for USD/JPY buyers to keep pushing the price higher toward 150. We have the US CPI inflation numbers coming out tomorrow which will determine the short-term price action. Softer-than-expected US inflation may impact FED’s future guidance and send the USD lower.

This forex pair slipped below 138 earlier in the European session, but the 100 SMA (green) held as support on the H1 chart, and we are seeing a bounce now, with the price climbing around 50 pips higher. However, the volatility will be limited from now on s Europe heads toward the close, so we are remaining on the sidelines for the moment.

USD/JPY Live Chart