Japanese Yen remains on track to register gains for the third straight week against USD

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• The Japanese Yen struggles to capitalize on its modest intraday gains against the USD on Friday.
• The divergent Fed-BoJ policy expectations keep a lid on any further upside for the USD/JPY pair.
• Traders now look to the US ISM PMI for short-term impetus ahead of Fed Chair Powell’s speech.

The Japanese Yen (JPY) loses traction following an early uptick against the US Dollar (USD) on Friday and is undermined by a combination of factors. Bank of Japan (BoJ) policymakers struck a relatively dovish tone this week and said that it was premature to debate an exit from ultra-easy policy. This, along with the bullish sentiment around the US equity markets, undermines the safe-haven JPY and lifts the USD/JPY pair above the 148.00 mark heading into the European session, though subdued US Dollar (USD) price action caps the upside. 

A duo of Fed officials on Thursday pushed back against expectations for a quick pivot to rate cuts and left the door open to further policy tightening should the progress on inflation stall. The markets, however, seem convinced that the US central bank is done with its policy-tightening campaign and could start cutting interest rates as early as March 2024. This, in turn, holds back the USD bulls from placing fresh bets and acts as a headwind for the USD/JPY pair ahead of Fed Chair Jerome Powell’s speech later during the US session.

Apart from this, growing acceptance that a second straight year of significant wage hikes next year will offer an opportunity for the BoJ to consider stepping away from a decade-long monetary stimulus further keeps a lid on spot prices. Furthermore, conerns about the worsening economic condtions in China warrant caution for bulls. Nevertheless, the USD/JPY pair remains on track to end in the red for the third week in a row as traders now look to the release of the US ISM Manufacturing PMI for short-term impetus on the last day of the week. 

Daily Digest Market Movers: Japanese Yen surrenders modest intraday gains against USD, lacks follow-through

• Bank of Japan board member Seiji Adachi said on Wednesday that it was premature to debate an exit from negative interest rates as the country is yet to see a positive wage-inflation cycle become embedded enough.
• A fellow board member Toyoaki Nakamura noted on Thursday that now is not the time to consider shifting policy and that the BoJ must be cautious about phasing out its massive stimulus measures.
• Investors, meanwhile, expect that the substantial pay increases witnessed this year – the largest in over 30 years – will continue into 2024 and should allow the BoJ to pivot away from its dovish stance.
• Macro data released earlier this Friday showed that Japan’s unemployment rate unexpectedly ticked down to 2.5% in October from 2.6% in the previous month, though does little to influence the Japanese Yen.
• The final Japan au Jibun Bank Manufacturing PMI showed that business activity shrank at the fastest pace in nine months and fell to 48.3 in November from 48.7 in the previous month.
• The US Commerce Department reported on Thursday that inflation – as measured by the Personal Consumption Expenditures (PCE) Price Index – was unchanged in October as compared to 0.4% in September.
• Over the 12 months through October, the PCE Price Index decelerated from 3.4% to 3.0%, registering the smallest year-on-year increase since March 2021.
• The core PCE, which strips out volatile food and energy prices, rose by a modest 0.2% in October and saw an annual rise of 3.5%, matching expectations and pointing to signs of easing inflation.
• The number of Americans who applied for unemployment benefits rose by 7K to 218K during the week ended on November 25 and Continuing Claims surged to a two-year high.
• New York Fed Bank President John Williams said that the central bank’s policy stance is the most restrictive in 25 years, and it will probably need to stay restrictive for quite some time.
• San Francisco Fed President Mary Daly struck a similar tone and noted that her base case does not call for any further rate hikes, though it was too early to know if the Fed is finished with the rate increases.
• The USD, however, struggles to attract any follow-through buying amid growing market conviction that the Fed may start easing its monetary policy as early as March 2024.
• Market participants now look forward to Fed Chair Jerome Powell’s scheduled speeches later during the US session for short-term trading opportunities on the last day of the week.

Technical Analysis: USD/JPY struggles to build on its intraday bounce from the vicinity of mid-147.00s

From a technical perspective, weakness below the Asian session low, around the 147.60 area, might continue to find some support near the 100-day Simple Moving Average (SMA), currently around the 147.15 area. This is followed by the 147.00 mark, below which the USD/JPY pair could slide back to the 146.65 region, or its lowest level since September 12 touched on Wednesday. Some follow-through selling could expose the 146.00 round figure before spot prices extend the downfall further towards the next relevant support near the mid-145.00s.

On the flip side, any subsequent move up is likely to confront a stiff resistance near the overnight swing high, around the 148.50 region. A sustained strength beyond the latter might trigger a short-covering rally and allow the USD/JPY pair to reclaim the 149.00 mark. The momentum could get extended further towards the 149.55-149.60 supply zone. The latter should act as a key pivotal point, which if cleared will suggest that spot prices have formed a near-term bottom.