Japanese Yen remains on the back foot against USD; bears await FOMC/BoJ decisions

• The Japanese Yen attracts some sellers following the release of Japanese Trade Balance data.
• Bets that the BoJ will keep rates unchanged and elevated US bond yields also weigh on the JPY.
• Traders keenly await the crucial FOMC decision, ahead of the BoJ policy update on Thursday. 

The Japanese Yen (JPY) attracts fresh sellers during the Asian session on Wednesday and erodes a part of the previous day’s modest recovery gains against its American counterpart. Investors now seem convinced that the Bank of Japan (BoJ) will keep interest rates steady on Thursday, which has been a key factor behind the recent JPY depreciation. The bets were reaffirmed by Japan’s trade data that pointed to weak domestic demand amid the uncertain economic outlook and concerns about US President-elect Donald Trump’s tariff plans. 

Apart from this, elevated US Treasury bond yields, bolstered by the prospects for a less dovish Federal Reserve (Fed), act as a tailwind for the US Dollar (USD) and further undermine the lower-yielding JPY. That said, a softer risk tone could help limit losses for the safe-haven JPY as traders look forward to the key central bank event risks for a fresh directional impetus. The Fed will announce its decision at the end of a two-day meeting later today, followed by the latest BoJ monetary policy update during the Asian session on Thursday. 

Japanese Yen bulls remain on the sidelines amid diminishing odds for a BoJ rate hike this week

• A report published by Japan’s Ministry of Finance showed on Wednesday that the country’s trade deficit unexpectedly improved in November and came in at ¥117.6 billion compared to October’s deficit of ¥462.1 billion. 
• The improvement was driven by strong growth in exports, which increased by 3.8% year-on-year in November amid a weaker Japanese Yen and a pickup in demand from Japan’s biggest trading partners – the US and China. 
• The upbeat reading, however, was offset by a 3.8% decline in Japanese imports, which, along with expectations that the Bank of Japan will not hike interest rates later this week, attracts fresh sellers around the JPY. 
• The yield on the benchmark 10-year US government bond shot to its highest level since November 22 following the release of US Retail Sales data, which underscored robust consumer spending and economic resilience. 
• The Commerce Department reported that sales at the retail level increased by 0.7% in November compared to the 0.5% growth recorded in the previous month, while sales ex Autos fell short of expectations and rose 0.2%.
• The report, meanwhile, had little impact on market expectations that the Federal Reserve will lower borrowing costs for the third time, by 25 basis points at the end of a two-day policy meeting later this Wednesday. 
• However, signs that the progress towards bringing inflation back to the central bank’s 2% target suggest that the Fed could adopt a more cautious stance and pause its rate-cutting cycle at the January policy meeting.
• Hence, investors will scrutinize the updated economic projections, which include the so-called dot plot, and Fed Chair Jerome Powell’s comments at the post-meeting press conference for cues about the rate-cut path. 
• The market attention will then shift to the crucial BoJ policy decision, scheduled during the Asian session on Thursday, which should further contribute to providing a fresh directional impetus to the USD/JPY pair. 

USD/JPY technical setup supports prospects for further appreciating move, beyond 154.00 mark

From a technical perspective, the emergence of some dip-buying on Wednesday comes on top of the recent breakout through the very important 200-day Simple Moving Average (SMA) and favors bullish traders. Moreover, oscillators on the daily chart have been gaining positive traction and are still far from being in the overbought territory, suggesting that the path of least resistance for the USD/JPY pair is to the upside. Any further move up, however, might face some resistance near the 154.00 mark ahead of the 154.45-154.50 region, or a three-week top touched on Monday. A sustained move beyond the latter should pave the way for a move towards reclaiming the 155.00 psychological mark. The momentum could extend further towards the next relevant hurdle near mid-155.00s en route to the 156.00 mark and the 156.25 supply zone. 

On the flip side, the 153.15 area, or the overnight swing low, now seems to protect the immediate downside. Some follow-through selling below the 153.00 mark could drag the USD/JPY pair back towards the 200-day SMA pivotal support, near the 152.15 region. Failure to defend the said support levels might shift the bias in favor of bearish traders and make spot prices vulnerable to accelerate the slide towards the 151.00 round figure en route to the 150.00 psychological mark.