Japanese Yen stands tall near multi-month top against the USD, US PCE data in focus

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• The Japanese Yen continues with its relative outperformance amid hawkish BoJ expectations.
• Bets for a series of rate cuts by the Fed in 2024 undermines the USD and weighs on USD/JPY.
• Bears turn cautious and look to the US PCE Price Index before positioning for a firm direction. 

The Japanese Yen (JPY) remains on the front foot against its American counterpart for the fifth successive day on Thursday amid expectations that the Bank of Japan (BoJ) will soon end its negative rate policy. The JPY bulls, meanwhile, seem rather unaffected by Wednesday’s less hawkish remarks by BoJ board member Seiji Adachi, saying that the economy is yet to reach a stage where the central bank could debate an exit from ultra-easy monetary policy. On the economic data front, Japanese Retail Trade for October missed consensus estimates, though the disappointment was offset by an upward revision of the previous month’s reading and better-than-expected Industrial Production figures.

Apart from this, the underlying bearish sentiment surrounding the US Dollar (USD) – amid growing acceptance that the Federal Reserve (Fed) is done raising interest rates – keeps the USD/JPY pair depressed near a three-month low touched on Wednesday. The recent dovish remarks by several Fed officials lifted market bets that the US central bank may start easing its monetary policy as early as March 2024. This overshadows the upbeat US GDP print, which showed that the economy grew at a faster pace than estimated originally during the July-September period. The data, however, does little to provide any respite to the USD, suggesting that the path of least resistance for the pair is to the downside.

That said, bearish traders now seem reluctant to place aggressive bets ahead of the release of the US PCE Price Index, due later during the early North American session. The core gauge is the Fed’s preferred benchmark for measuring longer-term inflation trends and will play a key role in influencing the next policy move. This, in turn, should provide some meaningful impetus to the buck and help determine the near-term trajectory for the USD/JPY pair ahead of Fed Chair Jerome Powell’s speech on Friday.

Daily Digest Market Movers: Japanese Yen bulls shrug off the overnight less hawkish remarks by BoJ’s Adachi

• The Japanese Yen draws support from hawkish Bank of Japan expectations even though board member Seiji Adachi on Wednesday downplayed speculations about an imminent shift in the policy stance.
• BoJ’s Adachi says that Japan is yet to see a positive wage-inflation cycle become embedded enough and it is appropriate to patiently maintain the current easy policy.
• Adachi added that BoJ will take additional easing steps if needed and the move in October to make YCC flexible was not aimed at laying the groundwork for policy normalisation.
• Japanese Retail Trade fell 1.6% in October but grew by 4.2% from a year earlier. The previous month’s reading was revised higher to show a rise of 6.2% against 5.8% reported.
• Japanese Industrial Production rose more than expected, by 1% in October, as compared to the previous month’s 0.5% uptick and increased 0.9% compared with a year earlier.
• The second estimate of the US GDP showed that the world’s largest economy grew by a 5.2% annualized pace during the third quarter as compared to the 4.9% reported previously.
• The upbeat US macro data, however, was largely offset by more dovish comments by Federal Reserve officials, which reaffirmed bets for a series of rate cuts in 2024.
• Cleveland Fed President Loretta Mester saw clear progress in getting inflation to 2% and said that monetary policy must be nimble in current circumstances.
• Separately, Richmond Fed President Tom Barkin believes that inflation will be more stubborn than what they would like and is unwilling to take another interest rate hike off the table.
• US rates futures markets are now pricing in more than 100 bps of rate cuts next year, starting in May, and the yield on the rate-sensitive two-year US government bond is at its lowest since July.
• This keeps the US Dollar bulls on the defensive and exerts some pressure on the USD/JPY pair for the fifth straight day, ahead of the release of the US PCE Price Index later this Thursday.

Technical Analysis: USD/JPY needs to find acceptance below 100-day SMA for bears to seize near-term control

From a technical perspective, the USD/JPY pair, so far, has been showing some resilience below the 100-day Simple Moving Average (SMA), warranting caution for bearish traders. That said, oscillators on the daily chart are holding deep in negative territory but  still some distance away from being oversold. This, in turn, suggests that the path of least resistance for spot prices remains to the downside and any meaningful recovery attempt could be seen as a selling opportunity.

Meanwhile, the multi-month trough, around the 146.65 region touched on Wednesday, now seems to protect the immediate downside, below which the USD/JPY pair could accelerate the fall towards the 146.00 round figure. On the flip side, the 147.30-147.35 zone is likely to act as an immediate hurdle ahead of the overnight swing high, around the 147.90 area and the 148.00 mark. Any further move up could attract fresh sellers and remain capped near the 148.30 strong horizontal support breakpoint, now turned resistance.