The USD/JPY currency pair is still pressured, trading below the important 146.00 level during Asian trading hours to start Friday. A trifecta of new economic data from Japan has raised serious doubts about the condition of one of the world’s largest economies. This uncertainty has primarily driven an almost 9 month lagged response in the market.
Japan in March experienced the largest decrease of real wages in three consecutive months. This continued trend adds to worries about the spending power of consumers. Japan’s household spending rose more than expected. Such outperformance would likely bolster the case for further monetary tightening from the Bank of Japan (BoJ) in the months/quarters to come. The damage caused by the juxtaposition of sliding worker wages and skyrocketing household expenses has produced a convoluted economic reality.
At the same time, the AUD/USD pairing remains under pressure below the 0.6400 mark after China released dour trade data. The new numbers have recorded China’s April Trade Balance data missed market expectations by a large margin. This was double disappointment thereby shaking confidence in Australian dollar. The AUD/USD is treading water as it continues to consolidate around this important barrier early on Friday.
The US dollar is flying high, recently touching a one-month high. This increase is largely driven by positive sentiment from a new trade agreement between the United States and United Kingdom. This upbeat perception of US trade dynamics stands in stark relief to the headwinds currently battering the Yen and AUD.
The market is certainly in the midst of a volatile and confused digestion of these mixed calls. Consequently, USD/JPY fell sharply back under 146.00 after reacting to Japan’s latest economic data. Declining real wages is what’s making investors’ ears perk up. At the same time, strong household spending contributes to the uncertainty over Japan’s future monetary policy. Many analysts think the BoJ will be pushed towards more tightening by the strengthening spending. As FPI points out, the continued erosion of wages is a major obstacle to long-term growth.