Japanese Yen remains on the front foot; USD/JPY languishes near 157.30 area

• The Japanese Yen attracts safe-haven flows and strengthens for the third straight day. 
• The BoJ rate hike uncertainty might hold back the JPY bulls from placing fresh bets. 
• Hawkish Fed expectations underpin the USD and lend support to the USD/JPY pair.

The Japanese Yen (JPY) trades with a positive bias against its American counterpart for the third consecutive day and drags the USD/JPY pair away from a multi-month peak touched on Friday. The global risk sentiment takes a hit in the wake of growing acceptance that the Federal Reserve (Fed) will pause its rate-cutting cycle later this month. Apart from this, geopolitical risks drive some flows towards the safe-haven JPY. 

Meanwhile, the broadening inflationary pressure in Japan keeps the door open for another interest rate hike by the Bank of Japan (BoJ) in January or March and turns out to be another factor underpinning the JPY. Some investors, however, are betting that the BoJ may wait until April to seek confirmation that strong wage momentum will carry over into the spring negotiations, which seems to cap the upside for the JPY. 

Moreover, the recent widening of the US-Japan yield differential, bolstered by hawkish Fed expectations, further contributes to keeping a lid on the lower-yielding JPY. Apart from this, some follow-through US Dollar (USD) buying acts as a tailwind for the USD/JPY pair, warranting some caution before positioning for a deeper corrective slide. Traders might also opt to wait for this week’s release of the latest US inflation figures. 

Japanese Yen remains supported by risk-off mood; bulls seem non-committed amid BoJ rate-hike uncertainty

• A mix of geopolitical tensions and rate jitters temper investors’ appetite for riskier assets, which, in turn, benefits traditional safe-haven assets and drives flows towards the Japanese Yen for the third straight day on Monday. 
• The Office of Foreign Assets Control (OFAC) said on Friday that the US and the UK administration imposed tougher sanctions against Russia’s oil industry, targeting nearly 200 vessels of the so-called shadow fleet.
• The Russian Defence Ministry said on Sunday that Russian forces have carried out strikes on Ukrainian military airfields, personnel and vehicles in 139 locations using its air force, drones, missiles and artillery.
• In an apparent violation of the ceasefire agreement between Israel and Hezbollah, more Israeli strikes have been reported in Lebanon. Moreover, Israeli strikes continued across Gaza amid renewed ceasefire talks.
• The US Bureau of Labor Statistics (BLS) reported on Friday that Nonfarm Payrolls rose by 256,000 in December compared to 212,000 in the previous month and market expectations for a reading of 160,000.
• Other details showed that the Unemployment Rate unexpectedly edged lower to 4.1% from 4.2%, while annual wage inflation, as measured by the change in the Average Hourly Earnings, declined to 3.9%.
• The upbeat US jobs report reinforced market expectations that the Federal Reserve will pause its rate-cutting cycle at its upcoming policy meeting later this month amid lingering inflation and political uncertainty. 
• This, in turn, pushed the US Dollar to over a two-year peak and the US Treasury yields to the highest in over a year, widening the US-Japan yield differential, which should cap the upside for the lower-yielding JPY. 
• The market focus now shifts to the release of the US Producer Price Index (PPI) and the US Consumer Price Index (CPI) on Tuesday and Wednesday, respectively, which will play a key role in influencing the USD/JPY pair. 

USD/JPY bullish bias remains; dip-buying should help limit the downside near the 157.00 mark

From a technical perspective, Friday’s low, around the 157.20-157.20 region, could offer immediate support ahead of the 157.00 mark and the 156.80-156.75 support zone. Any further weakness could be seen as a buying opportunity near last week’s swing low, around the 156.25-156.20 area. This should help limit the downside for the USD/JPY pair near the 156.00 mark, which if broken decisively might shift the near-term bias in favor of bearish traders and pave the way for deeper losses.

On the flip side, the Asian session high, around the 158.00 neighborhood, now seems to act as an immediate hurdle ahead of the 158.45-158.50 region and the 158.85-158.90 zone, or the multi-month peak touched on Friday. Some follow-through buying beyond the 159.00 mark will be seen as a fresh trigger for bulls and lift the USD/JPY pair towards the next relevant hurdle near mid-159.00s en route to the 160.00 psychological mark.