12 Dec 2024

• The Japanese Yen attracts fresh sellers amid reports that the BoJ will keep rates steady next week.
• The prevalent risk-on mood and rising US bond yields further undermine the lower-yielding JPY. 
• A modest USD weakness keeps a lid on the USD/JPY pair ahead of the US PPI and Jobless Claims.
• The Japanese Yen (JPY) is experiencing renewed selling pressure after a brief intraday increase, moving closer to a two-week low against the US Dollar as the European session approaches. Investor sentiment remains cautious regarding the Bank of Japan's (BoJ) potential for further monetary policy tightening, which continues to exert downward pressure on the JPY. Additionally, the rise in US Treasury bond yields, fueled by expectations that the Federal Reserve (Fed) will maintain a prudent approach to interest rate cuts, further diverts capital away from the lower-yielding JPY.
  
  Moreover, a generally optimistic sentiment in the equity markets serves as an additional factor diminishing the appeal of the safe-haven JPY. JPY bears appear hesitant to make aggressive moves, choosing instead to await the important BoJ policy meeting scheduled for next week. This, combined with a slight weakness in the US Dollar (USD), does not support the USD/JPY pair in sustaining its intraday recovery from levels below 152.00. Traders are now anticipating the release of the US Producer Price Index (PPI) and Weekly Initial Jobless Claims for potential short-term trading opportunities.

• Japanese Yen draws some support from weaker USD; not out of the woods yet

  A report from Bloomberg on Wednesday indicated that the Bank of Japan (BoJ) perceives minimal urgency in raising interest rates again, although officials remain receptive to a potential increase next week, contingent on forthcoming data and market conditions. Additionally, conflicting signals from BoJ representatives imply that the central bank is not in a rush to tighten its monetary policy, resulting in the Japanese Yen reaching a two-week low against the US Dollar on Wednesday. Furthermore, Reuters, referencing five sources acquainted with the BoJ's perspective, reported on Thursday that the Japanese central bank is contemplating maintaining current interest rates at its forthcoming policy meeting.
  
  In the meantime, Japan's economy is experiencing moderate growth, with wages steadily increasing and inflation persisting above the BoJ's 2% target, suggesting that the prerequisites for another interest rate hike are aligning. However, traders may be hesitant to make aggressive directional bets on the Japanese Yen prior to the BoJ's decision next week, which will follow closely after the anticipated interest rate cut by the Federal Reserve.
  
  The US Bureau of Labor Statistics (BLS) announced on Wednesday that the headline Consumer Price Index rose by 0.3% in November, representing the most significant increase since April, with the annual rate accelerating to 2.7%. Concurrently, the core CPI, which excludes the more volatile food and energy sectors, also increased by 0.3% for the month and stood at 3.3% for the year ending in November, aligning with market expectations. According to the CME Group's FedWatch Tool, the Federal Reserve is still anticipated to implement a third consecutive rate cut at the conclusion of its December meeting, driven by indications of a cooling labor market. However, the US CPI report suggests that progress in reducing inflation towards the Fed's 2% target has stalled, potentially compelling the Fed to adopt a more cautious approach regarding future interest rate reductions.

  • The markets are already anticipating that the Fed may hit the pause button as early as the January meeting amid the growing uncertainty surrounding US President-elect Donald Trump's policies and impending tariff plans. 
  • This, in turn, lifts the yield on the benchmark 10-year US government bond to a two-week high on Thursday, which should act as a tailwind for the US Dollar and continue to offer some support to the USD/JPY pair. 
  • Thursday's US economic docket features the release of the US Producer Price Index and the usual Weekly Initial Jobless Claims data, which might provide some impetus later during the North American session.

  • USD/JPY remains below 152.80 pivotal hurdle; 200-day SMA breakout in play

    From a technical standpoint, the recent breakout above the 200-day Simple Moving Average (SMA) at approximately 152.00 has been interpreted as a new impetus for bullish traders. Additionally, the oscillators on the daily chart are firmly positioned in positive territory and have not yet approached the overbought zone, indicating that the most favorable direction for the USD/JPY pair remains upward.
    
    However, the subsequent upward movement encounters resistance near the 152.70-152.80 range, which includes the 200-period SMA on the 4-hour chart and the 50% retracement level from the recent decline following the multi-month peak. This zone is likely to continue serving as an immediate barrier; if surpassed, the USD/JPY pair could exceed the 153.00 threshold and target the next significant resistance around the 153.65 area, corresponding to the 61.8% Fibonacci retracement level.
    
    Conversely, a decline below the 152.00 level may find support around the 151.75 region, which aligns with the 38.2% Fibonacci level. Should the pair continue to fall, it may attract new buyers, with support likely to be found near the 151.00 round number. This level is crucial, as a drop below it could lead the USD/JPY pair to test the 150.50 intermediate support before potentially reaching the psychological level of 150.00.