The yen showed little reaction to Japan’s July cash earnings jump, driven largely by bonuses. With scheduled pay growth subdued and productivity gains keeping inflation pressures in check, the BOJ is unlikely to tighten policy beyond current market pricing, leaving USD/JPY range-bound, BBH FX analysts report.

USD/JPY likely to hold broad 142–150 range

"JPY ignored Japan’s July cash earnings data. Nominal cash earnings rose more than expected in July to a seven-month high at 4.1% y/y (consensus: 3.0%) vs. 3.1% in June, reflecting a jump in bonus payments. The less volatile scheduled pay growth for full-time workers was more subdued at 2.4% y/y (consensus: 2.5%) vs. 2.3% in June. Overall, Japan wage growth is not a source of significant inflation pressures given annual total factor productivity growth of about 0.7%."

"The Bank of Japan is unlikely to raise the policy rate by more than is currently priced-in, limiting JPY upside. The swaps market implies 50% odds of a 25bps rate hike by year-end and a total of roughly 75bps of rate increases to 1.25% over the next three years. We expect USD/JPY to remain within a wide 142.00-150.00 range over the next few months."