Perhaps the quietest night of trade so far this year as financial markets from Frankfurt to London to New York are all closed for a variety of holidays and global event calendar is reduced to only one economic release. That release however was significant as it showed that prices in Japan’s Corporate Service Sector rose by 1.1% versus 0.6% expected reaching a 9 year high. Price pressures in both the goods and services sectors in Japan are clearly rising, but have yet to make their presence felt in the broader CPI gauges. Nevertheless, with energy costs remaining above the $60/bbl level it is only a matter of time that headline inflation numbers turn positive in Japan.

However, it remains to be seen whether the BOJ will respond to any up tick in prices. Over the weekend Governor Fukui told the Asahi newspaper, "It is wrong to think that the BoJ is desperate to raise interest rates. We don't have a scenario of raising interest rates based on a pre-set schedule." Japan’s monetary authorities are handcuffed in their policy choices by the lackluster pace of wage growth in the country. Despite strong growth in corporate profits, Japanese workers have not benefited from the latest increase in the country’s wealth with labor cash earnings actually contracting 4 months in a row. This in turn has led to anemic growth in consumer spending keeping the BOJ on the sidelines since February.

With Japanese employment, spending and wage data all due to be released in the next 48 hours, the currency market should be able to get a much better understanding of the country’s current economic state. If wages finally begin to rise while overall household spending records its fourth positive reading in a row, sentiment towards the yen may slowly shift as traders begin to price in the possibility of another 25bp rate hike this summer. With the Japanese currency so grossly oversold any upside surprise could finally trigger some profit taking in the USD/JPY pair. After three months of uninterrupted one way price action and so many players long the carry trade some adjustment is long overdue.

Boris Schlossberg is a Senior Currency Strategist at FXCM.