Japanese Yen reverses a major part of the overnight losses against US Dollar

• The Japanese Yen is back in demand on Friday and draws support from hawkish BoJ expectations.
• Fed rate cut bets prompt fresh selling around the USD and exert downward pressure on USD/JPY.
• Investors now look forward to Fed Chair Jerome Powell’s speech for some meaningful impetus.

The Japanese Yen (JPY) kicks off the new month on a positive note and recovers a major part of its previous day's losses against the US Dollar (USD) despite the recent less hawkish comments by Bank of Japan (BoJ) policymakers. In fact, BoJ board members Seiji Adachi and Toyoaki Nakamura pushed back against market speculations about a major shift in the central bank's policy stance. Investors, however, seem convinced that a second consecutive year of significant wage hikes next year will offer an opportunity for the BoJ to consider stepping away from a decade-long monetary stimulus. This, to a larger extent, overshadows the upbeat market mood and acts as a tailwind for the JPY.

The USD, on the other hand, stalls this week's solid recovery move from its lowest level since August 11 in the wake of firming expectations that the Federal Reserve (Fed) will not hike interest rates again. The bets were reaffirmed by the US macro data released on Thursday, showing that inflation continued to moderate in October and a slowing labour market. This triggers a fresh leg down in the US Treasury bond yields, which is seen undermining the Greenback and exerting some pressure on the USD/JPY pair. That said, the overnight hawkish remarks by FOMC members could lend support to the USD ahead of Fed Chair Jerome Powell's later during the US session this Friday.

Daily Digest Market Movers: Japanese Yen bulls seem unaffected by the recent less hawkish remarks by BoJ officials

• Bank of Japan board member Seiji Adachi said on Wednesday that it was premature to debate an exit from negative interest rates as the country is yet to see a positive wage-inflation cycle become embedded enough.
• A fellow board member Toyoaki Nakamura noted on Thursday that now is not the time to consider shifting policy and that the BoJ must be cautious about phasing out its massive stimulus measures.
• Investors, meanwhile, expect that the substantial pay increases witnessed this year – the largest in over 30 years – will continue into 2024 and should allow the BoJ to pivot away from its dovish stance.
• Macro data released earlier this Friday showed that Japan's unemployment rate unexpectedly ticked down to 2.5% in October from 2.6% in the previous month and further underpins the Japanese Yen.
• The US Commerce Department reported on Thursday that inflation – as measured by the Personal Consumption Expenditures (PCE) Price Index – was unchanged in October as compared to 0.4% in September.
• Over the 12 months through October, the PCE Price Index decelerated from 3.4% to 3.0%, registering the smallest year-on-year increase since March 2021.
• The core PCE, which strips out volatile food and energy prices, rose by a modest 0.2% in October and saw an annual rise of 3.5%, matching expectations and pointing to signs of easing inflation.
• The number of Americans who applied for unemployment benefits rose by 7K to 218K during the week ended on November 25 and Continuing Claims surged to a two-year high.
• New York Fed Bank President John Williams said that the central bank's policy stance is the most restrictive in 25 years, and it will probably need to stay restrictive for quite some time.
• San Francisco Fed President Mary Daly struck a similar tone and noted that her base case does not call for any further rate hikes, though it was too early to know if the Fed is finished with the rate increases.
• The USD, however, struggles to attract any follow-through buying amid growing market conviction that the Fed may start easing its monetary policy as early as March 2024.
• Market participants now look forward to Fed Chair Jerome Powell's scheduled speeches later during the US session for short-term trading opportunities on the last day of the week.

Technical Analysis: USD/JPY manages to hold its neck above 100-day SMA pivotal support, not out of the woods yet

From a technical perspective, any subsequent decline might continue to find some support near the 100-day Simple Moving Average (SMA), currently pegged around the 147.15 region. This is followed by the 147.00 mark, below which the USD/JPY pair could slide back to the 146.65 region, or its lowest level since September 12 touched on Wednesday. Some follow-through selling could expose the 146.00 round figure before spot prices extend the downfall further towards the next relevant support near the mid-145.00s.

On the flip side, the 148.00 round figure might now offer some resistance ahead of the overnight swing high, around the 148.50 region. A sustained strength beyond the latter might trigger a short-covering rally and allow the USD/JPY pair to reclaim the 149.00 mark. The momentum could get extended further towards the 149.55-149.60 supply zone. The latter should act as a key pivotal point, which if cleared will suggest that spot prices have formed a near-term bottom.