Japan’s Rengo, the largest trade union, agreed on total pay increases averaging 5.28% in 2024. This is up from 3.8% in 2023 and higher than the 4.1% rise expected by a Bloomberg survey of economists. 

The probability implied by interest rate futures (OIS) of a 10 bps Bank of Japan (BoJ) policy rate hike next week rose briefly to a high around 70% before settling back down around 60%. 

In our view, Japan’s improving inflation backdrop and soft economic activity suggest the BoJ is unlikely to normalise the policy rate by more than is currently priced-in over 2024 (25 bps total rate hikes). As such, USD/JPY will likely remain well supported above its 200-DMA at 146.39.