USD/JPY extends losses on Fed’s dovish tone, moves below 149.00

USD/JPY lowers by almost 0.30%, trading near 148.90 during the early European session on Monday. The USD/JPY pair's decline is attributed to market speculation suggesting that the US Federal Reserve (Fed) could potentially adopt a more accommodative monetary policy in the coming year.

The negative sentiment surrounding the US Dollar (USD) is further fueled by the mixed S&P Global PMI data, as the Fed underscores that its decisions will be contingent on incoming data.

The latest data on the US S&P Global Composite PMI for November remained unchanged at 50.7. The Services PMI rose to 50.8 in November from 50.6 in October. However, the Manufacturing PMI declined to 49.4 from 50.0, against the 49.8 as expected.

The Japanese Yen (JPY) saw a strengthening against the US Dollar on Friday, spurred by the release of Japanese inflation data. The National Consumer Price Index (CPI) for October showed a year-on-year increase of 3.3%, up from 3.0% in September. However, the National CPI excluding Food and Energy eased to 4.0% year-on-year, compared to the previous reading of 4.2%. The National CPI excluding Fresh Food ticked up to 2.9% from 2.8% in the prior reading.

Governor of the Bank of Japan, Kazuo Ueda, downplays the likelihood of Japan consistently reaching the 2.0% inflation target. While acknowledging the moderate recovery of the Japanese economy and narrowing the output gap to near zero, Ueda notes uncertainties about the sustainability of this cycle's strengthening. He is cautious about building up market expectations regarding a potential imminent policy shift by the BoJ.

This week seems to hold significant events for investors, with attention on Japan's Retail Trade, which could provide insights into the country's consumer spending trends. Meanwhile, in the US, the focus will be on the Gross Domestic Product (GDP) Annualized for the third quarter, offering a comprehensive view of the country's economic performance. Additionally, the Core Personal Consumption Expenditures (PCE) Price Index, a key inflation indicator, will be closely monitored to gauge the price trends excluding volatile food and energy components.