Japanese Yen surrenders a major part of intraday gains; USD/JPY moves closer to mid-147.00s

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• The Japanese Yen witnessed an intraday turnaround against the USD from a two-and-half-month top.
• BoJ board member Seiji Adachi’s less hawkish remarks turn out to be a key factor weighing on the JPY.
• A modest USD recovery from a multi-month low further prompts some short-covering around USD/JPY.
• Dovish Fed expectations continue to drag the US bond yields lower and should cap gains for the buck. 

The Japanese Yen (JPY) surrenders a major part of its intraday gains to a two-and-half-month high against the US Dollar (USD) in reaction to Bank of Japan (BoJ) board member Seiji Adachi’s less hawkish remarks. Downplaying speculation that the BoJ is considering ending negative interest rates, Adachi said that the economy is yet to reach a stage where the central bank could debate an exit from ultra-easy monetary policy. This, along with a generally positive risk tone, is seen undermining the safe-haven JPY. 

The USD, on the other hand, stages a modest recovery from its lowest level since August 11, which assists the USD/JPY pair to recover over 75 pips from the 146.65 area, or a near three-month trough touched earlier this Wednesday. Spot prices climb back closer to the mid-147.00s during the early part of the European session, though any meaningful appreciating move still seems elusive. Growing acceptance that the Federal Reserve (Fed) is done raising interest rates should cap the USD and act as a headwind. 

Furthermore, the recent comments from several Fed officials offer a clear signal that the US central bank could begin easing its policy as early as March 2024. This leads to a further decline in the US Treasury bond yields, which might hold back the USD bulls from placing aggressive bets. Traders now look to the release of the prelim US GDP print, which is expected to show that the world’s largest economy expanded by a 5% annualized pace during the July-September period as against the 4.9% previously reported. 

Apart from this, speeches by influential FOMC members will drive the USD demand and provide some impetus to the USD/JPY pair. The focus will then shift to the release of the US Core PCE Price Index – the Fed’s preferred inflation gauge on Thursday, which will help determine the near-term trajectory for the buck and the USD/JPY pair. Meanwhile, spot prices, for now, seem to have stalled the recent pullback from the 152.00 neighbourhood, though the fundamental backdrop warrants caution for bulls. 

Daily Digest Market Movers: Japanese Yen struggles to preserve its strong intraday gains against the USD

• BoJ’s Adachi says that Japan is yet to see 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 were not aimed at laying the groundwork for policy normalisation.
• Need to wait until the start of the next fiscal year in determining wage talks outcome, which will be crucial in making any big policy decisions, Adachi noted further.
• The comments undermine the Japanese Yen and allow the USD/JPY pair to bounce off a multi-month low, though dovish Federal Resreve expectations cap any further gains.
• Fed Governor Michelle Bowman said on Tuesday that she remains willing to support raising interest rates should the incoming data indicate that progress on inflation has stalled.
• New York Fed President John Williams said that longer-term inflation expectations have been encouragingly steady, but did not make any forward-looking comments about monetary policy.
• Fed Governor Christopher Waller said that there are good economic arguments that if inflation continues to decline for several more months, it is possible to lower the policy rate.
• Waller added that he was increasingly confident that policy is currently well positioned to slow the economy and get inflation back to the central bank’s 2% target.
• The dovish remarks reaffirm the market view that the Fed is done with its policy-tightening campaign and may begin cutting interest rates in the middle of 2024.
• On the economic data front, the Conference Board’s US Consumer Confidence Index rose to 102 in November from the previous month’s downwardly revised reading of 99.1.
• Consumers’ 12-month inflation expectations fell to 5.7% from 5.9% in October, in contrast to the University of Michigan’s survey last week that long-term inflation expectations rose in November to levels last seen in 2011.
• Traders now look to the prelim US GDP report, which is expected to show that the economy expanded by a 5% annualized pace during the third quarter, for short-term impetus.

Technical Analysis: USD/JPY stages a solid intraday recovery from a multi-month low touched this Wednesday

From a technical perspective, the USD/JPY pair showed some resilience below the 100-day Simple Moving Average (SMA) pivotal support and the subsequent move-up warrants caution for bearish traders. That said, oscillators on the daily chart have been gaining negative traction and are still far from being in the oversold territory. This, in turn, suggests that the path of least resistance for spot prices remain to the downside and any further recovery might still be seen as a selling opportunity. 

Some follow-through buying, however, should allow the USD/JPY pair to reclaim the 148.00 round figure. The momentum could get extended, though is likely to remain capped near the 148.30 strong horizontal support breakpoint, now turned resistance. On the flip side, the 100-day SMA, around the 147.00 mark now seems to act as an immediate support ahead of the 146.65 area, or the Asian session low, below which spot prices could slide to the 146.00 mark.