USD/JPY prediction: More upside as Japan real wages drop

The USD/JPY price is hovering near its highest level in over 20 years as the divergence between the Federal Reserve and the Bank of Japan (BoJ) widened. The pair is trading at 130.81, which is slightly below the year-to-date high of 131.27.

BOJ and Fed divergence

The BOJ and Federal Reserve have taken diverging paths as the world sees an uneven recovery from the pandemic. 

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In its most recent monetary policy meeting, the BOJ committed to continuing with its easing policy in a bid to manage the economy. Kuroda maintained that he would leave interest rates intact and continue with its asset purchase program. 

The Fed took a different path last week. In its statement, the bank decided to deliver the biggest rate hike in over 20 years. It also signaled that it will continue hiking interest rates by 50 basis points in the coming meetings. 

Further, the bank said that it was open to implementing a quantitative tightening policy, which will involve reducing its total balance sheet.

On Monday morning, data by Japan’s statistics agency showed that real wages declined in March as inflation rose at its fastest pace in over three years. Inflation-adjusted real wage declined by 0.2%, which was the first decline since December. 

Japan, unlike other developed countries, is seeing a relatively slower inflation rate. While the headline figures are low, they are still the highest they have been in years. For example, Tokyo’s inflation rose to the highest level in over seven years.

The next key catalyst for the USD/JPY pair will be the upcoming US inflation data that is scheduled for Wednesday. Economists expect the data to show that the country’s CPI fell from 8.5% to 8.1% while core inflation fell from 6.5% to 6.0%.

USD/JPY forecast

The four-hour chart shows that the USD/JPY pair has been in a strong bullish trend in the past few months. Along the way, the pair moved above the 25-day and 50-day moving averages. It has also moved slightly above the ascending trendline shown in red while the Relative Strength Index (RSI) has moved close to the overbought level. 

Therefore, the pair will likely keep rising as bulls target the year-to-date high of 131.31. A move below the support level at 130 will invalidate the bullish view.