USD/JPY extends Powell-led losses to fresh 14-week low, BOJ’s Kuroda, US PCE Inflation eyed

USD/JPY bears cheer US Dollar weakness to print the lowest level in more than three months around 137.30 as Tokyo opens on Thursday. The Yen pair’s latest weakness could also be linked to the downbeat US Treasury bond yields, as well as the risk-on mood in the market.

Fed Chair Jerome Powell marked his first public appearance after November’s Federal Open Market Committee (FOMC) meeting while speaking at the Brookings Institute on the economic outlook, inflation and employment. The policymaker stated that it makes sense to moderate the pace of interest rate increases while also suggesting that the time to slow the pace of rate hikes could come as soon as the next meeting in December. On the same line was a member of the Fed Board of Governors Lisa D. Cook who praised the inflation data to signal that the Fed would likely take smaller steps as it moves forward.

Following Powell’s speech, the market’s wagers favoring a 50 basis points (bps) rate hike from the Federal Reserve in December increased from 69.9% ahead of the speech to above 75%, which in turn drowned the US Dollar and the Treasury yields while fueling the equities.

As a result, the US Dollar Index (DXY) snapped a three-day uptrend while portraying the biggest daily loss in a week on Wednesday, not to forget mentioning the biggest monthly fall in 12 years. It’s worth noting that the Wall Street benchmarks cheered the dovish remarks from Fed Chair while the United States 10-year Treasury bond yields reversed the early gains to end November on a negative footing around 3.61%.

Other than Fedspeak, the downbeat US data and optimism surrounding China’s Covid conditions also weighed on the USD/JPY prices. Among them, US ADP Employment Change gained major attention as it marked the lowest readings since January 2021 with a 127K figure for November versus the 200K forecast and 239K previous readings. Further, China reported just around 38,000 daily Coronavirus cases on Tuesday, conveyed on Wednesday, marking the second consecutive day of receding virus numbers after refreshing the record high. Not only the easy cases but the gradual reliefs in the virus-led activity controls in major cities like Zhengzhou, Guangzhou and Chongqing, also seemed to have favored the Yen pair sellers.

Moving on, the Fed’s preferred inflation gauge, namely US Core Personal Consumption Expenditure (PCE) Price Index for October, expected 5.0% YoY in October versus 5.1% prior, will be crucial for immediate USD/JPY moves. Also important will be the monthly prints of the US ISM Manufacturing PMI for November, expected 49.8 versus 50.2 prior. It should be noted that the latest chatters over the likely policy tightening by the Bank of Japan (BOJ) in 2023 highlight today’s speech from BOJ Governor Haruhiko Kuroda.

Technical analysis

Repeated failures to cross a three-week-old resistance line, currently around 138.45, direct USD/JPY bears towards a downward-sloping support line from late September, near 136.75.