JPY Reverses Initial Gains On Rengo Pay Deal, No Surprises Seen, BoJ Hike Exp. Deepen

The Rengo group reveals that its annual wage talks secured a pay hike of 5.28%. That compares to 3.80% one-year ago and initial demands of 5.85%. It also represents a multi-decade high.

• Initial market reaction in JPY pairs is modest, with little to shock here, even with the Rengo outcome in the upper end of expectations.
• USD/JPY trades as low as Y148.04 before recovering to Y148.35. A short-term bear threat remains present following the recent sharp sell-off. Meaningful support isn’t seen until the Mar 8/11 low (146.49). Initial resistance at the 20-day EMA (Y148.82).
• EUR/JPY prints a low of Y161.07 before recovering to Y161.40. The pair remains above Monday’s low. Sights are on a key trendline support at Y160.85. Initial resistance at the Mar 8 high (Y162.17).
• JGB futures are a little higher vs. pre-announcement levels, given the lack of surprise.
• Subsequent headlines from JiJI suggest that the BoJ is making final arrangements to end NIRP at next week’s meeting. This isn’t a surprise given pre-Rengo announcement news flow and the outcome of the wage talks.
• Assuming the BoJ does exit NIRP next week focus will quickly fall to any guidance provided.
• The BoJ’s drawn out approach re: NIRP exit means that many do not expect swift/sharp tightening after an initial hike.