Japanese Yen edges higher on upbeat wages data, hawkish BoJ Minutes and soft USD

• USD/JPY ticks lower during the Asian session on Wednesday, though it lacks bearish conviction.
• Hawkish BoJ bets lend support to the JPY on the back of the recent US-Japan joint intervention.
• US-Iran peace deal hopes and receding Fed hike bets undermine the USD, capping spot prices.

The USD/JPY pair struggles to capitalize on this week's solid bounce from the 155.25-155.20 area, or the lowest level since early May, and edges lower during the Asian session on Wednesday. Spot prices, however, lack follow-through selling and hold just above mid-157.00s amid mixed cues.

Government data released earlier today showed that real wages in Japan grew for the ​sixth consecutive month, by 1.6% in June, and backs the case for more interest rate hikes by the Bank of Japan (BoJ). Adding to this, Minutes from the BoJ's June 15-16 meeting revealed that the board voted 7-1 to raise the policy rate by 25 basis points (bps) to around 1.0%, or the highest level since 1995, amid the upside risk to inflation. This, along with the recent US-Japan joint intervention, offers some support to the Japanese Yen (JPY) and acts as a headwind for the Japanese Yen (JPY).

Meanwhile, investors remained hopeful for a diplomatic resolution to end a five-month-old US-Iran war after Secretary of the Treasury Scott Bessent said that the US and Iran were nearing an agreement. Bessent further told CNBC that a deal to reopen the Strait of Hormuz was imminent. The optimism dragged crude oil prices to a nearly four-week low, easing inflation fears and tempering US Federal Reserve (Fed) rate-hike bets. This keeps the safe-haven US Dollar on the back foot and is turning out to be another factor that contributes to capping the upside for the USD/JPY pair.

The JPY bulls, however, seem hesitant amid concerns about Japan's worsening fiscal situation. In fact, Japan's ruling Liberal Democratic Party (LDP) backed a proposal to cut the food consumption tax from 8% to 1% for two years starting in April 2027. Adding to this, the Japanese government proposed roughly ¥600 billion a year in cash transfers targeted at low- and middle-income households as part of a relief package. However, the lack of a clear funding mechanism is seen as the key concern, which keeps a lid on the JPY and should limit losses for the USD/JPY pair.

Apart from this, the persistently wide interest rate differential between Japan and other major economies, including the US, might continue to fuel the so-called JPY carry trade and support the currency pair. Traders now look forward to the US economic docket, featuring the release of the ADP report on private-sector employment and the ISM Services PMI, for some impetus later during the North American session. The focus, however, will remain on the closely-watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report, due on Friday.