USD/JPY Trading Outlook: Basis Point Adjustments and Wage Data Guide Future Trends

USDJPY faces another round of policy expectation re-pricing. With the Fed expected to cut rates and the Bank of Japan possibly raising rates, the differing outlooks on basis point adjustments are becoming the key factor in determining the next direction of this currency pair. Several major economic data releases are upcoming this week, and market participants need to closely interpret what these data imply for central bank policy adjustments.

Fed’s 62 Basis Point Easing Expectation Pressures the Dollar

Recent dollar performance reflects investor confidence in the Fed’s rate cut cycle. The market is currently pricing in about 62 basis points of rate cuts expected to be gradually implemented within the year, a view reinforced after last week’s US manufacturing PMI came in below expectations.

Although last week’s manufacturing data was not a surprise, the dollar experienced broad adjustments afterward, erasing gains made during the European trading session. The key issue is that if subsequent economic data continue to show signs of weakness, expectations for further easing by 2026 could be brought forward, putting ongoing pressure on the dollar. Conversely, if economic data strengthen, the market may revise down the number of basis points expected to be cut, providing support for the dollar.

In the short term, investors generally believe the Fed could start rate cuts as early as March, but only if data deteriorate significantly that month. Currently, this probability remains relatively low. Over the past two weeks, non-farm payrolls and the Consumer Price Index (CPI) have both fallen short of expectations, but this has not altered the market’s basic pricing of about 62 basis points of cuts this year.

Bank of Japan Wage-Driven Policy Path: 42 Basis Points Expected

In contrast, the yen’s movement is driven by a completely different policy logic. Japan’s latest Tokyo CPI data came in below expectations, though inflation remains above the 2% target, the Bank of Japan (BoJ) has not shown urgency. The central bank’s focus has shifted to wage growth, which has become the key indicator for the next policy move.

The market is currently pricing in about 42 basis points of tightening for the BoJ this year, implying two 0.25% rate hikes. This expectation suggests that the market believes the BoJ is unlikely to act before June unless there is clear acceleration in wage growth or a significant jump in inflation.

Wage prospects and the results of spring wage negotiations (Shunto) will be critical in judging when the BoJ might start raising rates. Strong wage growth could prompt earlier expectations of larger rate hikes; if wage growth stalls, the current expectation of around 42 basis points may be revised downward.

Technical Breakout Key Levels: Support at 154.50 and Target at 160.00

From a technical perspective, USDJPY has formed a clear support zone on the daily chart. The 154.50 level has long served as a “bullish fortress,” tested multiple times over recent weeks but holding firm. Traders buying around this level can find a favorable risk-reward ratio, with targets set at 160.00.

A break below this support would open the door for bears. If 154.50 gives way, the next key focus is the major trendline near 151.00, representing a longer-term upward trend support.

On the 4-hour chart, market volatility appears more chaotic, lacking clear trading signals. A slowly rising trendline may serve as a reference point for bulls; a move above this line could trigger chasing higher, aiming for new highs. Bears are watching for a decisive break of this trendline; once broken, the support around 151.00 becomes a new shorting target.

The 1-hour chart shows an expanding wedge pattern. Bulls may look to enter around the lower boundary, aiming for an upward breakout; bears are preparing for a decision near the upper boundary, either waiting for a breakout signal or establishing short positions near the top. The red line indicates the day’s average range, providing risk parameters for traders.

Non-Farm Payrolls and Wage Data to Ignite Market: Full Weekly Schedule

This week, the market faces a series of key economic reports that will directly influence the re-pricing of basis points.

Tomorrow (March 13), the US will release the ADP employment report, ISM Services PMI, and job openings data. These indicators help assess the true health of the US labor market and indirectly influence the Fed’s judgment on the magnitude of rate cuts.

On Thursday (March 15), focus shifts to Japan, with wage data due. US initial jobless claims will also be released. Japan’s wage data will be decisive for the BoJ’s policy direction and could redefine market expectations for the 42 basis point rate hike.

Friday (March 17) marks the climax: the US Non-Farm Payrolls (NFP) report. This report is the most direct evidence of whether the Fed will stick to its plan of about 62 basis points of rate cuts this year. Strong data could support the dollar, while weak data would reinforce easing expectations.

What Traders Should Watch

Against the backdrop of basis point adjustments, traders need to monitor both central banks’ policy expectations. If the Fed’s rate cut expectations expand while the BoJ’s rate hike expectations shrink, USDJPY is likely to remain under pressure, testing the 154.50 support. Conversely, strong US data or weak Japanese wage data could push the pair toward 160.00.

This week’s economic calendar will be critical for reassessing these expectations, and market participants should be prepared to adjust positions swiftly.