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• The USD/JPY pair crashed after the strong Japan wages data.
• Foreigners are also buying Japanese stocks and bonds.
• The BoJ will hold its next monetary policy meeting on March 19th.

The USD/JPY exchange rate tumbled hard on Thursday as investors continued betting that the Bank of Japan (BoJ) will start cutting rates soon. The pair tumbled to a low of 148.63, its lowest level since February 8th of this year. It has plunged by over 1.52% from its highest point this year.

Japan wages are rising

The USD/JPY pair continued its strong downward trend after a series of encouraging economic numbers from Japan. 

A report by the statistics agency said that the average cash earnings jumped to 2.0% in January, beating the median estimate of 1.3%. Overtime pay rose by 0.40% while the overall wage income jumped to 2.0%.

These numbers mean that the country is doing relatively well even after plunging into a recession in the fourth quarter. They also imply that Japan could see higher inflation in the coming months.

Most importantly, these reports will likely put pressure on the Bank of Japan to hike interest rates for the first time in over a decade. That rate hike will be important because it will help the country move from negative rates. It could happen as soon as on March 19th.

The BoJ rate hike will happen at a time when other global central banks are considering rate cuts. In a statement on Wednesday, Jerome Powell, the head of the Fed, said that the bank was waiting for more data to determine when to cut rates.

Most economists are now pricing in at least three rate cuts this year in a bid to improve an economy that is slowing. Recent economic data like consumer confidence and factory orders have missed estimates.

The USD/JPY pair also retreated after data showed that foreign investors were moving to the Japanese market. Foreigners bought stocks worth over 283 billion yen in February after dumping 206 billion yen in the previous month.

They bought bonds worth over 484 billion yen after selling 250 billion in the previous month. Recent data shows that Japanese stocks have surged, with the Nikkei 225 sitting at its all-time high.

Looking ahead, the next important USD/JPY news will be the second day of Jerome Powell’s testimony in Congress. The US will publish its non-farm payroll (NFP) data on Friday.

USD/JPY forecast

USD/JPY chart by TradingView

Turning to the 4H chart, we see that the USD to JPY exchange rate topped at 150.86, where it struggled to move above since February 13th. It has now crashed below the key support at 149.21, its lowest point on February 29th.

The USD/JPY pair has crossed the 50-period and 25-period moving averages. Notably, the Relative Strength Index (RSI) has become extremely oversold at 18. Therefore, the path of the least resistance for the pair is bearish, with the next target being at 148.91, the lowest swing on February 1st.

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