USD/JPY was steady just under 154.50 after a 153-pip swing, dropping more than a yen on July pay data before retracing the move, and Japan has no further domestic releases in the remaining four sessions. Nominal cash earnings rose 4.7% versus a 3.9% consensus, the fastest since January 1997, while base pay increased 4.1%, the quickest since April 1992; real wages gained 2.4%, marking a seventh straight rise and the best in five years. The spring wage round reached 5.01% for a third year above 5%, and revised Q2 annualised growth was lifted to 1.4% versus 1.1% expected with the deflator steady at 2.6%. Bonuses jumped 6.3% after a revised 4.7%, overtime slowed to 3.1%, the bonuses-and-overtime-stripped measure rose 2.7%, and private consumption was flat; the current account shifted to a ¥2.988 trillion July surplus from a ¥92.3 billion deficit, while the labour ministry gauge rose to 2.2% from 1.9%.
Japan’s foreign reserves fell 6.2% in August to $1.208 trillion, with securities down $87.8 billion, after a late-July joint Tokyo–Washington operation that drove USD/JPY from just under 164.00 towards 157.50 within two sessions, briefly below 155.50, before it traded back near 160.00 by 1 September. Since then the pair has dropped more than seven yen in five sessions, with 154.00 repeatedly breaking and recovering; forecasts now cluster in the low 150s, and the yen is the best-performing major this year with the pair below its 2026 start. US data due includes a four-week average of private payrolls on Wednesday at 12:15 GMT after 11.75K, then PPI on Thursday at 12:30 GMT seen at 0.4% m/m after flat July and 5.3% y/y after 4.7%, with core at 0.3% and 4.6%; jobless claims are seen at 205K after 206K, and existing home sales follow at 14:00 GMT after a 1.7% fall. Friday brings CPI at 12:30 GMT seen at 0.4% m/m, 3.4% y/y and 2.4% core, ahead of the Fed’s 15–16 September meeting with a quarter-point priced near 58%, while Michigan sentiment is seen at 51 after 51.7 and one-year inflation expectations were 4%; the BoJ meets two days later. Technical levels cited include resistance at 154.50, then 155.00 and 155.50, with 156.00, the 200-day EMA just below 158.00 and the 50-day EMA near 159.50; support is 154.00, then just under 153.00, 152.50 and 152.00, with Stoch RSI near 76 and a five-minute reading near 75, and a close above 155.50 framed as invalidating a bearish view.
Bearish Setup and Trading Strategies
We should position ourselves for a bearish shift in USD/JPY over the coming weeks, especially with the pair struggling to break above the 154.50 resistance level. With the daily Stochastic RSI rolling over from 76 after a steep seven-Yen fall, buying short-dated put options or shorting the pair on rallies toward 154.50 offers a highly favorable risk-reward ratio. We target the immediate support at 153.00, with a secondary target near the 152.00 handle if bearish momentum accelerates.
Macro Drivers: Bond Yields, Interventions, and Central Bank Policy
This bearish outlook is strongly supported by narrowing bond yield differentials, as the spread between the US 10-Year Treasury and the 10-Year Japanese Government Bond has compressed from over 400 basis points last year to under 280 basis points recently. The upcoming US CPI and PPI releases are highly likely to cement the Federal Reserve’s expected interest rate cut on September 15-16, which currently has a 58% market probability. We expect this shrinking rate gap to keep persistent downward pressure on the currency pair, making any intraday recoveries short-lived.
Furthermore, Tokyo’s massive $87.8 billion drawdown in foreign securities during their joint July intervention shows that authorities are fully prepared to cap runaway USD/JPY spikes. This aggressive policy stance, combined with Japan’s nominal wage growth surging by 4.7% in July, clears the runway for the Bank of Japan’s anticipated rate hike on September 18. We recommend utilizing volatility options, such as long straddles, to profit from the guaranteed market swings as both central banks make their crucial policy announcements just two days apart.
