Nikkei 225 and USD/JPY Slide as Japan’s Average Cash Earnings Decline
USDJPY and Nikkei 225 have made a bearish break recently, as risk sentiment deteriorates and the BOJ hiked interest rates.
Yen Strengthens Amid BOJ Policy Shift and Trade Concerns
The USD/JPY pair has faced strong bearish pressure in 2025, dropping over 10 cents after a hawkish shift by the Bank of Japan (BOJ) and mounting trade tensions. The yen’s strength as a safe-haven asset has added to the downward momentum, reversing gains made in Q4 of 2024.
USD/JPY Chart Weekly – The 100 SMA Is Broken
Between September 2024 and January 2025, USD/JPY surged nearly 20 cents, climbing from below 140 to a peak near 159. However, sellers took control mid-January, triggering a steep decline. Last week, the pair fell below 150, breaching the 100 SMA (green) on the weekly chart, a key support level, signaling further downside potential.
Despite the current sell-off, USD/JPY remains in a long-term bullish trend, continuing to make higher lows. However, breaking below the 100-week SMA could open the door for a deeper retracement.
Nikkei 225 Faces Bearish Pressure
Japan’s Nikkei 225 index has been in an extended uptrend, supported by moving averages on the weekly chart. The 20 SMA (gray) and 50 SMA (yellow) have consistently acted as strong support, helping the index push higher.
However, the BOJ’s rate hikes and a broader decline in risk sentiment have put pressure on Japanese equities in 2025. Earlier this month, the index failed to hold above the 50 SMA, leading to a renewed sell-off. Now, the 100-week SMA (green) is the next key support level for Nikkei sellers.
Japan’s Wage Growth Slows, Adding to Market Concerns
Last night, Japan’s Average Cash Earnings report revealed weaker-than-expected wage growth, reinforcing concerns about consumer spending and inflation trends. Slowing earnings growth could dampen domestic demand, adding another layer of uncertainty to Japan’s economic outlook.
Japan Wage Data – January 2025
- February Labour Cash Earnings increased 2.8% y/y, slightly below the 3.0% expected, indicating a slower pace of wage growth compared to previous months.
- January Labour Cash Earnings were higher at 4.4%, suggesting a stronger wage trend earlier in the year.
- Real Cash Earnings (inflation-adjusted wages) fell -1.8% y/y, worse than the expected -1.6%, marking a decline due to elevated inflation rates hitting a two-year high.
- Prior Real Cash Earnings were +0.3%, showing a sharp deterioration in workers’ real income.
- Overtime Pay for February increased 3.1% y/y, a strong rise from the 0.8% recorded in January, signaling higher labor demand and extended working hours.
Conclusion & Market Impact
The slower-than-expected wage growth and fall in real earnings indicate that inflation is outpacing salary increases, which may pressure consumer spending and overall economic growth. The increase in overtime pay suggests labor shortages and higher work demand, but workers’ purchasing power remains under strain.
For the Bank of Japan (BOJ), these figures complicate monetary policy decisions. While wage growth is essential for sustained inflation, the decline in real wages may undermine household consumption, making it challenging for the BOJ to justify further tightening. This mixed economic signal could weigh on the yen (JPY) and Japanese equities, especially as investors assess the likelihood of BOJ policy adjustments in the coming months.
Further Weakness Ahead?
With USD/JPY breaking key support levels and the Nikkei 225 facing renewed selling pressure, Japanese markets appear vulnerable to further downside. If BOJ policy remains firm and risk sentiment continues to decline, we could see continued yen strength and deeper corrections in Japanese equities.
Traders will be watching upcoming economic data and BOJ policy signals closely to determine whether this bearish trend will persist or if a short-term rebound is on the horizon.
USD/JPY Live Chart
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