Japanese economic data tempered expectations of an October Bank of Japan rate hike, sending USD/JPY to 152.377 in the early trading session on Wednesday, October 8.
Average cash earnings increased 1.5% year-on-year in August, down sharply from 3.4% in July. Softer wage growth is expected to weaken household spending, potentially cooling demand-driven inflation. Crucially, the softer wage growth figures followed recent comments from BoJ Governor Kazuo Ueda, who raised concerns about tariffs affecting wages, stating:
“If uncertainty regarding overseas economies and trade policies remains high, firms may place stronger emphasis on cost-cutting and may weaken their efforts to reflect price increases in wages.”
Sanae Takaichi, the new leader of Japan’s Liberal Democratic Party and potentially Prime Minister, also underscored the need for sustained wage growth for further monetary policy tightening. She stated:
“Demand-pull inflation — wage increases driving demand growth, leading to a gradual rising of prices and corporate profits — is the best outcome. Until such a situation emerges, we must maintain close communication with the Bank of Japan. We must stay in sync.”
Takaichi’s support for ultra-loose monetary policy and today’s wage growth data sent USD/JPY to its highest level since February 2025.
FOMC Meeting Minutes, Fed Speakers, Capitol Hill, and USD/JPY Outlook
Across the Pacific, market focus remains on the US government shutdown and the Fed’s upcoming interest rate decision. Overnight, lawmakers failed to reach an agreement on a stopgap funding bill needed to reopen the government.
A prolonged shutdown could weigh on the US economy and further delay key economic data releases. The Fed typically adopts a more dovish stance during extended shutdowns, reinforcing expectations for policy easing. With the next Senate vote today, the US dollar could face selling pressure if the vote fails to reach the 60 required to pass the stopgap funding bill.
Meanwhile, Fed speakers and the FOMC meeting minutes will also require consideration amid rising bets on multiple Q4 rate cuts. FOMC voting members Michael Barr, Alberto Musalem, and alternate member Neil Kashkari are on the calendar to speak. Views on the shutdown, the economic outlook, and inflation could influence USD/JPY trends.
USD/JPY Scenarios: Political Factors, BoJ Policy, and Dovish Fed Risks
Bearish USD/JPY Scenario: hawkish BoJ signals or dovish Fed rhetoric could push USD/JPY toward 150.
Bullish USD/JPY Scenario: dovish BoJ cues or hawkish Fed signals could drive the pair toward the February 2025 high of 155.88.
