USDJPY rises 0.35% as US labor costs fall, productivity steady

USDJPY Analysis

Performance after Tuesday
Period	Pct	Chg	Momentum
Tuesday	0.35%	53.4 Pips
Week to-date	1.35%	202 Pips
December	0.49%	74.4 Pips

Upcoming key events (London Time)

Wed 01:30 PM USD CPI Inflation Rate (12-mth)
Thu 01:30 PM USD PPI excluding Food and Energy sectors (12-mth)

What happened lately

In the United States, the Bureau of Labor Statistics reports a decrease in unit labor costs, which fell to 0.8% in the third quarter (Q3) from 1.9% in the second quarter (Q2). This reduction suggests a potential easing of inflationary pressures as lower labor costs can lead to reduced production expenses for businesses. Moreover, the data on nonfarm business labor productivity showed no change, maintaining a steady growth rate of 2.2% from Q2 to Q3. The stability in productivity levels can indicate that businesses are efficiently using their labor resources without causing additional inflationary or deflationary tendencies.

The decrease in unit labor costs might be perceived favorably by the U.S. Federal Reserve as it seeks to balance inflation control with economic growth. A decline in these costs may alleviate some pressure to increase interest rates aggressively, provided other inflation indicators remain controlled. However, market participants will likely turn their focus to the forthcoming high-impact U.S. economic indicators, particularly the Consumer Price Index (CPI) inflation rate and the Producer Price Index (PPI) excluding food and energy sectors, due to be released this Wednesday and Thursday, respectively. These releases could provide further insights into inflation trends and the likely direction of monetary policy in the future.

As for the USDJPY currency pair, the recent modest rise of 0.35% to 151.91 can be attributed to these economic developments. The combination of stable productivity and decreasing labor costs in the U.S. may offer a mixed outlook for the dollar. While the drop in labor costs points towards constrained inflation, which could temper the urgency for aggressive rate hikes, the market’s anticipation of upcoming inflation data looms large. If the forthcoming CPI and PPI figures suggest heightened inflation, it could strengthen the dollar further against the yen. Alternatively, if these figures indicate controlled inflation, it may maintain or weaken the dollar depending on broader economic narratives.

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What can we expect from USDJPY today?

USDJPY on Tuesday rose 0.35% to 151.91. Price is above 9-Day EMA while Stochastic is rising.

Updated daily direction for USDJPY looks bullish as the pair ended higher after Tuesday trading session.

Looking ahead for the day, immediate upside resistance level is R1 at 152.43 with break above could target R2 at 152.95. While towards the downside, we are looking at daily low of 150.89 as an important support. Break below this level could weaken the current bullish momentum. A break above 152.18 would suggest bullish bias after recent positive movement.

For the week to-date, take note that USDJPY is mixed as compared to prior week.

Key levels to watch out: