Japanese Yen trims a part of intraday losses against USD as traders brace for US PCE data

The Japanese Yen retreats from a one-week top on softer inflation figures from Japan.
Dovish Fed expectations undermine the USD and cap gains for the USD/JPY pair.
Traders now look to the US Core PCE Price Index for some meaningful impetus.

Haresh Menghani FXStreet

The Japanese Yen (JPY) lost traction on Friday following the release of softer domestic consumer inflation data, which added to the uncertainty over the timing of when the Bank of Japan (BoJ) could begin tightening its ultra-loose policy. Adding to this, minutes of the BoJ October monetary policy meeting showed that members agreed to the need to patiently maintain the current easy policy and further undermine the JPY. This, along with a modest US Dollar (USD) uptick, assisted the USD/JPY pair to stage a modest recovery from a fresh weekly low, around the 141.85 region touched earlier today.

Japan's core CPI, meanwhile, remains about the 2% target for the 20th straight month. Apart from this, hopes that wage growth next year may outpace that of 2023 suggest that the BoJ is more likely to pivot away from its ultra-dovish stance as soon as April, if not in January. In contrast, the markets are now pricing in a more aggressive policy easing by the Federal Reserve (Fed) in 2024. The bets were lifted by a downward revision of the US Q3 GDP print, which holds back traders from placing fresh USD bullish bets and keeps the USD/JPY pair below the 200-day Simple Moving Average (SMA).

Investors now look to the release of the US Core Personal Consumption Expenditure (PCE) Price Index, due for release later during the early North American session. The key inflation data will influence the Fed's future policy decisions, which, in turn, will drive the USD demand and determine the near-term trajectory for the USD/JPY pair. Nevertheless, the aforementioned fundamental backdrop seems tilted in favour of the JPY bulls and suggests that the path of least resistance for the pair remains to the downside.

Daily Digest Market Movers: Japanese Yen remains on the defensive against the USD ahead of the US PCE data

Japan’s core Consumer Price Index (CPI) slowed from the prior month’s print of 2.9% and rose 2.5% in November from a year earlier, marking its slowest pace since August 2022.
Furthermore, a core reading that excludes both fresh food and fuel prices eased to 3.8% year-on-year from 4% in October, suggesting that the underlying inflation was also easing.
Meanwhile, headline CPI decelerated from the 3.3% seen in the prior month to 2.8% year-on-year in November, raising doubt over the possibility of a Bank of Japan policy pivot.
All three inflation measures, however, remain well above the BoJ's 2% target and support prospects for an imminent shift in the central bank's ultra-dovish policy stance.
Minutes of the BoJ October monetary policy meeting showed that several members backed the case to sustain the Yield Curve Control (YCC) policy to continue supporting wage growth.
The US Dollar languishes near a multi-month low on the back of bets that the Federal Reserve will start easing its policy early next year and a downward revision of the US Q3 GDP.
The third and final reading from the US Bureau of Economic Analysis showed that the world's largest economy expanded by a 4.9% annualized pace vs. a 5.2% rise in the second estimate.
Separately, the Labor Department reported that Initial Weekly Jobless Claims rose slightly, by 2K to 205K during the week that ended December 16, though remained at historically low levels.
The CME Group's FedWatch Tool, meanwhile, indicates a greater chance that the Fed will cut interest rates in March 2024 and deliver 150 bps of cumulative cuts by the year end.
Investors now await the crucial US core Personal Consumption Expenditure (PCE) Price Index, which is expected to rise by 0.2% in November and come in at 3.3% on a yearly basis.
Friday's US economic docket also features the release of Durable Goods Orders, which will influence the USD and produce short-term opportunities around the USD/JPY pair.

Technical Analysis: USD/JPY fails ahead of 200-day SMA, bearis still seem to have the upper hand

From a technical perspective, spot prices showed some resilience below the 142.00 mark and for now, seem to have snapped a two-day losing streak. That said, the overnight breakdown back below the very important 200-day Simple Moving Average (SMA) favours bearish traders. Moreover, oscillators on the daily chart are holding deep in the negative territory, suggesting that the path of least resistance for the USD/JPY pair is to the downside. Hence, any subsequent move up might still be seen as a selling opportunity and remain capped near the 142.75 region (200-day SMA). That said, some follow-through buying, leading to a subsequent move beyond the 143.00 mark, might prompt some short-covering move and allow bulls to reclaim the 144.00 round figure.

On the flip side, weakness below the Asian session low, around the 141.90-141.85 region, will reaffirm the near-term bias and make the USD/JPY pair vulnerable to retesting sub-141.00 levels, or a multi-month low touched last week. The subsequent downfall has the potential to drag spot prices towards the 140.45 intermediate support en route to the 140.00 psychological mark.

Japanese Yen price today

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the weakest against the Australian Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		0.04%	-0.01%	-0.03%	0.02%	0.18%	0.01%	0.00%
EUR	-0.04%		-0.04%	-0.10%	-0.02%	0.10%	-0.03%	-0.03%
GBP	0.01%	0.03%		-0.04%	-0.05%	0.20%	-0.04%	0.00%
CAD	0.03%	0.07%	0.03%		0.06%	0.23%	0.04%	0.03%
AUD	-0.03%	0.02%	-0.02%	-0.06%		0.15%	-0.01%	0.06%
JPY	-0.15%	-0.10%	-0.11%	-0.18%	-0.09%		-0.11%	-0.12%
NZD	-0.01%	0.05%	0.01%	-0.03%	0.03%	0.17%		0.02%
CHF	-0.03%	0.04%	-0.01%	-0.03%	0.01%	0.13%	0.01%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Economic Indicator

United States Personal Consumption Expenditures - Price Index (YoY)

The Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The YoY reading compares prices in the reference month to a year earlier. Price changes may cause consumers to switch from buying one good to another and the PCE Deflator can account for such substitutions. This makes it the preferred measure of inflation for the Federal Reserve. Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

GBP/USD advances to three-month peak beyond 1.3600

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EUR/USD surges to 11-week high above 1.1650 after US Treasury announcement

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Gold holds above $4,500, highest since June on falling US bond yields

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Australia unemployment rate expected to hold at 4.4% in July

Australia will release the July monthly employment report on Thursday at 01:30 GMT. Ahead of the announcement, analysts anticipate a modest 15K increase in job creation, while the Unemployment Rate is expected to remain steady at 4.4%.

$20 billion offered, $2 billion taken: Why Treasury doubled its buyback cap

The US Treasury moved off its own calendar on Wednesday, and that is the part worth sitting with. At 12:32 GMT, the department said it would at least double the size of liquidity support buyback operations in the 10-year to 20-year and 20-year to 30-year sectors, lifting the maximum from $2 billion per operation to at least $4 billion, effective September 9 and running to November 4.

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