09 Dec 2024

• The Japanese Yen edges higher in reaction to an upward revision of Japan’s Q3 GDP.
• The recent decline in the US bond yields undermines the USD and also benefits the JPY.
• Doubts over the BoJ’s ability to hike interest rates further cap the upside for the JPY.
• The Japanese Yen (JPY) continues to face challenges in establishing significant momentum, as it maintains a consolidative price movement against the US Dollar during the Asian trading session on Monday. Despite an upward adjustment to Japan's GDP figures for the third quarter, uncertainty regarding the likelihood of the Bank of Japan (BoJ) implementing further interest rate increases in December remains a significant obstacle for the JPY. This situation, coupled with a slight increase in the US Dollar (USD), provides some support for the USD/JPY pair.
  
  Moreover, geopolitical tensions, along with apprehensions regarding the potential trade tariffs from US President-elect Donald Trump and the recent drop in US Treasury bond yields, prevent JPY bears from making aggressive moves. Consequently, this necessitates a cautious approach before making bold directional bets on the USD/JPY pair. Investors may also choose to await the release of US consumer inflation data later this week for insights into the Federal Reserve's (Fed) potential rate cut trajectory and to seek meaningful market direction.
• Japanese Yen faces challenges in establishing a clear near-term trajectory due to uncertainties surrounding the Bank of Japan. The revision of Japan's third-quarter GDP indicates a growth of 0.3%, surpassing the initial estimate of 0.2%. Year-over-year, the economy has expanded by 1.2%, exceeding previous forecasts of 0.9%.
  
  This annual growth rate represents a significant deceleration from the 2.2% increase recorded in the preceding quarter, with weak private consumption suggesting that the positive impact of substantial wage increases is diminishing. Consequently, this situation raises concerns about the Bank of Japan's capacity to implement further interest rate hikes, which has hindered the Japanese Yen from capitalizing on a slight intraday increase observed on Monday.
  
  In the United States, the Nonfarm Payrolls (NFP) report published on Friday indicated that the economy added 227,000 jobs in November, a notable rise from the upwardly revised 36,000 jobs in the previous month and exceeding the anticipated 200,000. The report also revealed that the Unemployment Rate increased to 4.2% in November from 4.1%, aligning with expectations, while Average Hourly Earnings remained stable at 4%, compared to the forecast of 3.9%.
  
  These critical employment figures reinforced market expectations that the Federal Reserve is unlikely to halt its easing cycle or reduce borrowing costs at the forthcoming policy meeting in December. Additionally, the University of Michigan’s preliminary consumer sentiment index for December rose to 74.0 from 71.8, while one-year inflation expectations increased to 2.9% from 2.6% in November.
  
  Cleveland Fed President Beth Hammack remarked that the current economic conditions necessitate a moderately restrictive policy, although the market's anticipation of one rate cut between now and late January appears reasonable. San Francisco Fed President Mary Daly emphasized that the labor market remains robust, and the central bank is prepared to implement further rate hikes if inflationary pressures resurface. Chicago Fed President Austan Goolsbee noted that the overall progress on inflation is promising, and any pause in rate cuts would depend on changes in inflation or labor market conditions. Fed Governor Michelle Bowman stated that
  
•  cut the interest rates cautiously and emphasized that the underlying inflation remains uncomfortably above the central bank’s 2% goal.
• The yield on the benchmark 10-year US government bond hangs near its lowest level since October 21, capping the US Dollar recovery from a multi-week low and supporting the lower-yielding JPY.

• USD/JPY bears need to wait for break below 100-day SMA pivotal support

  From a technical perspective, the range-bound price action could be categorized as a bearish consolidation phase against the backdrop of the recent pullback from a multi-month top touched in November. Moreover, oscillators on the daily chart are holding in negative territory and suggest that the path of least resistance for the USD/JPY pair is to the downside. That said, last week's resilience below the 100-day Simple Moving Average (SMA) warrants some caution for bearish traders. 

  In the meantime, the post-NFP low, around the 149.35 area, now seems to act as immediate support ahead of the 149.00 mark and the 100-day SMA, currently pegged near the 148.70-148.65 region. The latter coincides with a nearly two-month low touched last Tuesday and should act as a key pivotal point. Some follow-through selling could drag the USD/JPY pair to the 148.10-148.00 region en route to the 147.35-147.30 zone and the 147.00 round figure.

  On the flip side, attempted recovery might now confront some resistance near the 150.55 region. This is followed by the 150.70 hurdle, the 151.00 round figure and last week's swing high, around the 151.20-151.25 zone. A sustained move beyond the latter should allow the  pair to test the very important 200-day SMA near the 152.00 mark. Some follow-through buying will suggest that the corrective decline from a multi-month high has run its course and shift the bias in favor of bullish traders.