USD/JPY is steady above 153.50, close to its recent high near 154.50. This follows a 1.9% increase in Japanese nominal wages year-on-year in September, which matches expectations and is up from 1.3% in August. Scheduled pay growth for full-time workers in Japan has dropped to a six-month low of 2.2% year-on-year, down from 2.4% in August and below the expected 2.5%. Japan’s wage growth is linked to an annual total factor productivity rise of about 0.7%. However, this growth does not significantly influence inflation, although there is potential for wage increases.

Wage Negotiations Influence

The UA Zensen labor union aims for a 6% wage increase for regular employees next year after a 4.75% rise agreed for 2025. BOJ Governor Kazuo Ueda is watching the initial phase of wage talks closely before considering changes to monetary policy. The swaps market currently sees equal chances of a rate hike in December, with a full 25 basis point rise expected in Q1. USD/JPY remains strong above 153.50, driven by the dollar’s strength. Recent US inflation data from late October shows core CPI stuck at 3.4%, indicating that the Federal Reserve is unlikely to cut rates soon. This difference in policy between a firm Fed and a cautious Bank of Japan (BOJ) continues to support USD/JPY at these high levels. The latest Japanese wage data suggests that the BOJ might not raise rates immediately. While nominal wages are growing, scheduled pay for full-time workers has slowed, indicating that wage-driven inflation pressures are not yet strong. This leads us to believe the BOJ will likely hold off on policy changes until more solid evidence appears before December. Traders should focus on future developments. The UA Zensen union’s plan for a 6% wage increase in 2026 is a major factor that the BOJ must consider. The market fully anticipates a 25 basis point rate hike by the end of the first quarter of 2026, laying out a timeline for possible policy changes.

Government Intervention Risk

We should also be cautious of government intervention at these levels. Back in late 2022 and early 2023, Japanese authorities intervened to buy yen when the rate moved sharply through the 150-152 range. With the exchange rate currently above 153.50, the risk of sudden downward volatility due to intervention is much higher than it was a few months ago. For traders dealing in derivatives, this situation may call for buying volatility. Long straddles or strangles could perform well with significant movement in either direction, whether it moves toward 155 due to continued BOJ inaction or drops below 150 due to surprise intervention. Traders with a specific bias can consider purchasing out-of-the-money options for a defined-risk approach to position for these possible events in the coming months. Create your live VT Markets account and start trading now.

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