On Monday, July 8th, the USD/JPY pair closed slightly higher at 160.76 in New York trading, up a modest 0.02%. This minor gain can be attributed to some short-covering in the dollar index following Friday’s decline, temporarily stabilizing the greenback’s slide.

Japanese Wage Growth Hits 31-Year High

Early Monday data revealed that Japanese workers’ average base pay increased by 2.5% in May, marking the fastest growth rate in 31 years. The Bank of Japan (BOJ) noted that wage increases are spreading throughout the economy due to tight labor market conditions, hinting at progress towards the sustainable 2% inflation target.
 

BOJ Rate Hike Speculation Intensifies

This optimistic assessment may strengthen the case for a rate hike at the BOJ’s next meeting on July 30-31. Some analysts believe the central bank is approaching its rate hike window, potentially acting either this month or at the subsequent meeting.
 

Technical Outlook for USD/JPY

The 160 level and slightly above face selling pressure from exporters and profit-taking at these elevated levels, potentially capping the USD/JPY around 161.00 or slightly higher.On the daily chart, the pair has been experiencing a corrective pullback since reaching a 38-year high last Wednesday. However, with prices still holding above 160, it’s premature to call for a trend reversal.
 

Key Levels to Watch

• Resistance: 161.00 and slightly above
• Support: 160.00
• Potential trend reversal level: Below 158.00 (the starting point of the recent rally)

For a significant bearish reversal in USD/JPY, we would need to see a drop below the 158 level, which marked the beginning of the current uptrend.

In conclusion, while the USD/JPY pair remains at elevated levels, market participants are closely watching Japanese economic data and BOJ commentary for signs of a potential shift in monetary policy. The coming weeks could prove crucial in determining the pair’s medium-term direction.

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