Japanese Yen weakens further below 145.00 against USD, hits three-week low ahead of US NFP

The Japanese Yen (JPY) prolongs its weekly downtrend against the US Dollar (USD) for the fourth straight day and drops to a three-week low during the early European session on Friday. A powerful earthquake that hit Japan on New Year’s Day makes it harder for the Bank of Japan (BoJ) to abolish negative interest rates later this month, which, in turn, is seen as a key factor undermining the domestic currency. Meanwhile, diminishing odds for more aggressive policy easing by the Federal Reserve (Fed) remain supportive of elevated US Treasury bond yields and assist the USD to hold steady below a near three-week high touched on Wednesday. This, in turn, lifts the USD/JPY pair further beyond the 145.00 psychological mark in the last hour.

While speculation about a January tweak is receding, investors still seem convinced that the BoJ will shift away from ultra-loose monetary policy settings later in 2024, possibly in April after the annual wage negotiations in March. This, along with a generally weaker tone around the equity markets, could help limit any further losses for the safe-haven JPY. Traders might also opt to wait on the sidelines ahead of the official monthly jobs data from the United States (US) before placing fresh directional bets. The crucial Nonfarm Payrolls (NFP) report could offer cues about the timing of when the Fed will begin cutting interest rates, which, in turn, will influence the USD price dynamics and provide a fresh impetus to the USD/JPY pair on the last day of the week. 

Daily Digest Market Movers: Japanese Yen continues losing ground amid fading hopes of a hawkish BoJ pivot

• The Japanese Yen is pressured by expectations that the Bank of Japan will leave its current ultra-loose policy in place to assess the adverse impact of a devastating earthquake on the economy.
• BoJ Governor Kazuo Ueda said last week that he was in no rush to unwind accommodative monetary policy settings due to a lack of conviction that inflation would sustainably hit the 2% target.
• On Thursday Ueda said that he hoped further progress would be made in achieving balanced rises in wages, and inflation, and that BoJ would support the financial system after the earthquake.
• Market participants still expect the BoJ to end its negative interest rate policy sometime in 2024, which, along with the risk-off mood, could offer some support to the safe-haven JPY.
• Against the backdrop of geopolitical risks and China's economic woes, diminishing odds for multiple rate cuts by the Federal Reserve in 2024 continue to weigh on investors' sentiment.
• The minutes of the December 12-13 FOMC monetary policy meeting released on Wednesday did not offer any clues about the timing of when the Fed could begin cutting interest rates.
• Moreover, Richmond Fed President Thomas Barkin on Wednesday expressed confidence that the economy is on its way to a soft landing and said that rate hikes remain on the table.
• Adding to this, Thursday's upbeat US labor market reports dampened expectations for early interest rate cuts by the Fed and remain supportive of elevated US Treasury bond yields.
• Data published by Automatic Data Processing (ADP) on Thursday showed that Private sector employment in the US rose by 164K in December vs. 115K expected and annual pay was up 5.4%.
• Separately, the US Department of Labor (DOL) reported that the number of Americans filing new claims for unemployment-related benefits fell more-than-expected, to 202K last week.
• The au Jibun Bank/S&P Global Japan Service PMI was finalized at 51.5 for December as compared to the flash reading of 52 and 50.8 in November, though does little to provide any impetus.
• Traders now seem to have moved to the sidelines ahead of the key US NFP report, which is expected to show that the economy added 170K new jobs in December, down from the 199K previous.
• The unemployment rate is anticipated to tick higher from 3.7% to 3.8% during the reported month, while Average Hourly Earnings growth is seen easing to a 3.9% YoY rate from 4.0% in November.

Technical Analysis: USD/JPY climbs further beyond 145.00, bulls have the upper hand near multi-week high

From a technical perspective, the USD/JPY pair is looking to build on the momentum beyond the 38.2% Fibonacci retracement level of the November-December downfall. Given that oscillators on the daily chart have just started gaining positive traction, some follow-through buying beyond the 145.00 psychological mark should pave the way for further gains. Spot prices might then accelerate the positive move towards the 145.45-145.50 intermediate hurdle en route to the 146.00 round figure, or the 50% Fibo. level.

On the flip side, any meaningful downfall now seems to find decent support ahead of the 144.00 mark. A convincing break below, however, might prompt some technical selling and expose the 200-day Simple Moving Average (SMA) support, currently around the 143.25-143.20 region. The latter should act as a key pivotal point for the USD/JPY pair, which if broken decisively will suggest that the recent recovery from a multi-month low has run its course and shift the near-term bias back in favour of bearish traders.