Japanese Yen erases a major part of last week’s gains, slumps to mid-146.00s against USD

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• The Japanese Yen drifts lower for the second straight day against the US Dollar.
• Diminishing odds for an imminent shift in the BoJ’s policy shift undermine the JPY.
• The USD draws support from reduced bets for early interest rate cuts by the Fed.
• Investors look to the US CPI and the FOMC decision this week for a fresh impetus.

The Japanese Yen (JPY) extends its depreciating move for the second successive day, pushing the USD/JPY pair to mid-146.00s during the European session on Monday. A report on Friday suggested that Bank of Japan (BoJ) Governor Kazuo Ueda’s comments last week were misinterpreted and that the central bank will maintain the status quo until the positive wage-inflation cycle kicks off. This comes on top of the weaker GDP report from Japan, which pointed to a still fragile domestic economy and suggested that expectations of an imminent rate hike may be overblown. This, in turn, is seen undermining the JPY.

The US Dollar (USD), on the other hand, attracts some follow-through buying in the wake of reduced bets for an early policy easing by the Federal Reserve (Fed) and turns out to be another factor that provides a goodish lift to the USD/JPY pair. The closely watched monthly employment figures from the United States (US) showed on Friday that job growth accelerated in November and the unemployment rate fell to 3.7%. This pointed to signs of underlying labor market strength and suggested that the current market pricing of an interest rate cut in March 2024 was probably premature.

Meanwhile, the latest leg of a sudden spike around the USD/JPY pair witnessed over the past hour or so could be attributed to some technical buying on a sustained strength beyond the 100-hour Simple Moving Average (SMA). That said, concerns about a deeper global economic downturn and geopolitical risks, could limit losses for the safe-haven JPY and cap any further move up for the major. Traders might also refrain from placing aggressive bets ahead of this week’s key data/event risks – the US consumer inflation figures on Tuesday and the crucial FOMC policy decision on Wednesday.

Daily Digest Market Movers: Japanese Yen continues losing ground as reports downplay hopes for an early BoJ pivot

• A Reuters report, citing three sources familiar with the matter, said that Bank of Japan Governor Kazuo Ueda’s comments last week were not meant to signal an imminent policy shift.
• Adding to this, Bloomberg News reported on Monday, citing sources, that BoJ officials see little need to abandon the negative interest rate policy this month.
• This, along with data showing that Japan’s economy contracted more sharply than first estimated in the third quarter, by an annualized 2.9%, is seen undermining the Japanese Yen.
• The US Bureau of Labor Statistics (BLS) reported on Friday that the economy added 199K new jobs in November as compared to the 150K in the previous month and 180K anticipated.
• Additional details of the publication revealed that the Unemployment Rate declined to 3.7% from 3.9% in October, despite a rise in the Labor Force Participation Rate to 62.8% from 62.7%.
• Annual wage inflation, as measured by the change in Average Hourly Earnings, matched consensus estimates and held steady at 4% during the reported month.
• The upbeat US employment figures forced investors to scale back their expectations for an early interest rate cut by the Federal Reserve, as early as March 2024.
• Investors now look forward to the latest US consumer inflation figures on Tuesday, which could influence market expectations about a series of Fed rate cuts next year.
• The US central bank is also scheduled to announce its policy decision at the end of a two-day policy meeting on Wednesday and is anticipated to maintain the status quo.
• The market focus, meanwhile, will be on the so-called “dot plots” and Fed Chair Jerome Powell’s comments at the post-meeting press conference.

Technical Analysis: USD/JPY builds on its strong intraday rally to test 200-hour SMA resistance near mid-146.00s

From a technical perspective, the USD/JPY pair last week showed some resilience at the very important 200-day Simple Moving Average (SMA). The subsequent move beyond the 23.6% Fibonacci retracement level of the recent decline from the 152.00 neighbourhood, or the YTD peak, favours bullish traders. The strong intraday momentum, however, pauses near the 200-hour SMA, currently pegged near the 146.50 area. The said area should now act as a key pivotal point, which if cleared should allow spot prices to test the 50% Fibo. level, around the 146.80 region, and reclaim the 147.00 mark.

Meanwhile, oscillators on the daily chart are holding deep in the negative territory and support prospects for the emergence of some selling at higher levels. That said, the 100-hour SMA resistance breakpoint, around the 145.85 region, might now protect the immediate downside ahead of the 145.00 psychological mark. Some follow-through selling could turn the USD/JPY pair vulnerable to accelerate the sldie back towards the 144.55-144.50 intermedaite support en route to the 144.00 mark. A convincing break below the latter will be seen as a fersh trigger for bears and pave the way for deeper losses.