• The Japanese Yen continues to be undermined by expectations for a hawkish BoJ pivot in 2024.
• Fed rate cut bets drag the USD to over a four-month low and act as a headwind for USD/JPY.
• The risk-on mood might cap the JPY and limit losses for the pair ahead of the flash global PMIs.

The Japanese Yen (JPY) recovers early lost ground against the US Dollar (USD), albeit lacks any follow-through buying heading into to European session on Friday. The USD/JPY pair, meanwhile, oscillates in a range around the 142.00 round figure amid mixed fundamental cues, warranting some caution before positioning for a firm intraday direction. Firming expectations for an imminent shift in the Bank of Japan’s (BoJ) policy stance early next year turn out to be a key factor that continues to underpin the JPY. This, to a large extent, overshadows dismal domestic data, showing that Japan’s factory activity shrank for a seventh straight month in December.

Meanwhile, the upbeat US macro data released on Thursday, against the backdrop of last week’s stronger-than-expected US jobs report, forced traders to rethink the potential for an interest rate cut by the Federal Reserve (Fed) in March. This is reinforced by a goodish pickup in the US Treasury bond yields, which, along with the prevalent risk-on environment, keeps a lid on any meaningful appreciating move for the safe-haven JPY. The upside for the USD/JPY pair, however, remains capped in the wake of sustained USD selling bias. Traders might also refrain from placing aggressive bets and opt to wait on the sidelines ahead of the crucial BoJ policy meeting next week.

In the meantime, Friday’s release of the flash PMI prints from the Eurozone, the UK and the US could provide a fresh insight into the health of the global economy. This, in turn, would drive the broader market risk sentiment and influence demand for the traditional safe-haven JPY and provide some impetus to the USD/JPY pair. Nevertheless, spot prices remain on track to end deep in the red for the fifth successive week.

Daily Digest Market Movers: Japanese Yen recovers early lost ground against USD, bulls retain control

• The US Census Bureau reported on Thursday that Retail Sales rose 0.3% in November as compared to a 0.1% fall expected, underscoring resilient consumer spending despite higher borrowing costs.
• Moreover, Core Retail Sales, which excludes automobiles, also surpassed consensus estimates for a 0.1% decline and increased by 0.2% last month, while Retail Sales Control Group increased 0.4%.
• A separate report showed that Initial Jobless Claims fell to 202K during the week ended December 9, registering the lowest level since mid-October, and providing evidence of a still strong labor market.
• The upbeat US macro data cast doubts on expectations for an early interest rate cut by the Federal Reserve, as early as March 2024, forcing traders to take some profits off their US Dollar bearish bets.
• The au Jibun Bank flash Japan Manufacturing PMI shrank for the seventh straight month and dropped from 48.3 previous to 47.7 in December, marking the fastest deterioration in 10 months.
• The au Jibun Bank flash Services PMI recorded the fastest gain in three months and expanded to 52.0 in December from 50.8 previous, while the composite PMI expanded slightly to 50.4 from 49.6.
• Meanwhile, the prevalent risk-on environment is seen undermining the safe-haven Japanese Yen, though expectations for a shift in the Bank of Japan’s policy stance should help limit further losses.
• The latest Reuters poll show that 84% of economists see the BoJ to end negative interest rates in 2024 and 21% see the central bank to begin unwinding its ultra-loose monetary policy setting in January.
• The benchmark 10-year US government bond yield remains below 4% or its lowest level since August, and the yield on the rate-sensitive two-year Treasury note languishes near its weakest level since July.
• The resultant narrowing of the US-Japan rate differential, along with the divergent Fed-BoJ policy expectations, might continue to act as a tailwind for the JPY and cap gains for the USD/JPY pair.

Technical Analysis: USD/JPY oscillates around 142.00 mark, not out of the woods yet

From a technical perspective, the Relative Strength Index (RSI) on the daily chart is still holding in the oversold territory and prompts some short-covering on the last day of the week. That said, the overnight sustained break and acceptance below the 200-day Simple Moving Average (SMA) favours bearish traders. Hence, any subsequent move back above the said support breakpoint, turned resistance, currently around mid-142.00s, might still be seen as a selling opportunity near the 142.75-142.80 region. This, in turn, should cap the USD/JPY pair near the 143.00 round figure. That said, a sustained strength beyond the latter could allow spot prices to reclaim the 144.00 mark.

On the flip side, the 142.00 round figure now seems to protect the immediate downside ahead of the 141.40-141.35 region. Some follow-through selling might expose the multi-month low, around the 140.95 area touched on Thursday, below which the USD/JPY pair is likely to accelerate the downfall further towards 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 Canadian Dollar.