Japanese Yen sits near daily peak against USD, awaits crucial US inflation data

The Japanese Yen (JPY) maintains its bid tone through the early part of the European session on Thursday and for now, seems to have snapped a two-day losing streak back closer to the monthly low against the US Dollar (USD). The intraday uptick could be attributed to some repositioning trade ahead of the US consumer inflation figures, which might offer cues about the Federal Reserve's (Fed) future policy decisions and drive the USD demand. In the meantime, the uncertainty over the timing of when the Fed will start cutting interest rates keeps the USD bulls on the defensive and benefits the JPY. 

That said, any meaningful appreciating move, however, seems elusive amid expectations that the Bank of Japan (BoJ) will stick to its ultra-dovish monetary policy setting on the back of government stimulus following a devastating earthquake in Japan. This, along will falling rates of inflation in Tokyo and weak wage data released earlier this week, reaffirms bets that the BoJ is unlikely to exit the negative interest rates regime anytime soon. Apart from this, a generally positive tone around the equity markets caps gains for the safe-haven JPY and lends some support to the USD/JPY pair. Investors also seem reluctant ahead of the crucial US Consumer Price Index (CPI) report, warranting caution before positioning for deeper losses. 

Daily Digest Market Movers: Japanese Yen maintains its bid tone amid softer USD, lacks follow-through

• The Japanese Yen attracts some buyers on Thursday as traders opt to lighten their bearish bets and prefer to wait for the release of the latest US consumer inflation figures later during the North American session.
• The headline US CPI is expected to rise by 0.2% in December, lifting the yearly rate to 3.2% from 3.1%, while the core gauge (excluding food and energy prices) is anticipated to ease to 3.8% YoY from 4.0% previous.
• The crucial inflation data will play a key role in influencing the Fed's future policy decisions amid the uncertainty over the timing of the first interest rate cut and drive the US Dollar demand in the near term.
• New York Fed President John Williams said on Wednesday that the US central bank is in a ‘good place’ and has time to think about what’s next for rates, though would need to get policy back to more neutral levels.
• US Treasury Secretary Janat Yellen spoke from Boston on Wednesday, saying that said more work is required to get inflation under control and pledging to use “all tools at our disposal” to bring costs down.
• Japan's Labour Ministry reported on Wednesday that inflation-adjusted real wages fell by 3.0% in November from a year earlier and nominal pay grew by 0.2% in November – the slowest in nearly two years.
• Data released on Tuesday showed that Tokyo's core CPI decelerated to the 2.1% YoY rate in December and matched a low hit in June 2022, dampening hopes for a hawkish pivot by the Bank of Japan.
• The BoJ regards wage trends and inflation outlooks as key factors in considering the dismantling of its negative rate policy.
• The Organisation for Economic Co-operation and Development (OECD) Secretary-General Mathias Cormann said that there is scope for the BoJ to consequently consider the level of tightening in monetary policy.
• In its quarterly review of the Japanese regional economies, the BoJ raises the assessment for two , cuts assessment for 1 and maintains assessment for six of Japan’s 9 regions.
• A generally positive tone around the equity markets could further undermine the JPY's relative safe-haven status and help limit any meaningful downside for the USD/JPY pair ahead of the key US data risk.

Technical Analysis: USD/JPY migth attract some dip-buying near the 145.00 psychological mark

From a technical perspective, the recent repeated failures ahead of the 146.00 mark make it prudent to wait for a sustained strength beyond the said handle before positioning for any further gains. Given that oscillators on the daily chart have just started gaining positive traction, the USD/JPY pair might then climb to the 146.55-146.60 hurdle. The momentum could extend further towards the 147.00 mark, above which bulls might aim to challenge the 100-day Simple Moving Average (SMA), currently around the 147.45-147.50 region.

On the flip side, any further decline might now attract fresh buyers and remain limited near the 145.00 psychological mark. That said, a convincing break below will expose the next relevant support near the 144.65 horizontal zone. This is followed by the 144.20 area and the 144.00 round-figure mark, below which the USD/JPY pair could slide to the 200-day SMA, currently near the 143.45-143.40 region. Some follow-through selling will shift the near-term bias back in favour of bearish traders and drag spot prices below the 143.00 mark, towards the 142.45 support.