Japanese Yen hits one-week high against USD amid divergent BoJ-Fed expectations

• The Japanese Yen appreciates for the third successive day against the USD on Thursday.
• Expectations for an imminent shift in the BoJ’s policy stance act as a tailwind for the JPY.
• The post-FOMC USD selling bias drags the USD/JPY pair to the 142.00 neighbourhood.

The Japanese Yen (JPY) hit a fresh weekly high against the US Dollar (USD) during the Asian session on Thursday in reaction to a report that the Bank of Japan (BoJ) may exit its negative rate policy sooner than anticipated, between January and March. In contrast, the Federal Reserve (Fed) flagged the end of its policy-tightening campaign and struck a dovish tone for the year ahead at the end of a two-day policy meeting on Wednesday. This led to the overnight slump in the US Treasury bond yields, which continues to undermine the buck and drags the USD/JPY pair to the 142.00 neighbourhood.

That said, an extension of the risk-on rally across the global equity markets, with the Dow Jones Industrial Average (DJIA) recording a fresh record high after January 2022, keeps a lid on any further gains for the safe-haven JPY. This, in turn, assists the USD/JPY pair to recover a few pips from the daily trough. Any meaningful recovery, however, remains elusive on the back of the divergent BoJ-Fed policy expectations. Moving ahead, the central bank bonanza could infuse some volatility in the markets and influence the JPY ahead of the release of the US Retail Sales data later today.

Daily Digest Market Movers: Japanese Yen benefits from hopes for a hawkish BoJ pivot and dovish Fed-inspired USD fall

• Expectations for an imminent shift in the BoJ's policy stance boost the Japanese Yen, which, along with the post-FOMC US Dollar selling bias, drags the USD/JPY pair closer to the 142.00 mark during the Asian session on Thursday.
• A piece in Japanese media suggests that the Bank of Japan might be unwilling to go in the opposite direction if central banks in the US and Europe place rate cuts on the table and decide to exit negative rates between January and March.
• The Federal Reserve left the policy rate unchanged at 5.25%-5.50% range at the end of a two-day meeting on Wednesday and also acknowledged that inflation has eased, implying that interest rate increases have come to an end.
• Earlier in the day, data from the US showed that the Producer Price Index (PPI) remained unchanged in November, providing further evidence that inflation continues to meander down toward the Fed's average annual 2% target.
• The Fed's updated economic projections, which included the so-called "dot plot", signalled that lower borrowing costs are on the cards and now expect interest rates to fall to 4.6%, suggesting a cumulative 0.75% rate cut next year.
• In the post-meeting press conference, Fed Chair Jerome Powell said that the central bank is not likely to hike further and that it is very focused on not making the mistake of keeping rates too high for too long.
• The yield on the benchmark 10-year US government bond touched its lowest level since August after the Fed decision, while the two-year US Treasury yield, which reflects rate expectations, tumbled to its weakest level since early July.
• Data released this Thursday showed that Japan Machinery Orders, which is seen as a leading indicator of capital spending in the coming six to nine months, rose 0.7% in October, beating consensus estimates for a modest decline.
• Traders now look to the latest monetary policy updates by major central banks in Europe for short-term opportunities ahead of the US monthly Retail Sales, expected to fall for the second successive month, by 0.1% in November.

Technical Analysis: USD/JPY needs to consolidate around 200-day SMA before the next leg down amid slightly oversold RSI

From a technical perspective, spot prices continue to show some resilience below the very important 200-day Simple Moving Average (SMA). Moreover, the Relative Strength Index (RSI) on the daily chart has just started flashing slightly oversold conditions and warrants caution for bearish traders. Hence, it will be prudent to wait for some near-term consolidation or a modest bounce before positioning for an extension of the recent sharp pullback from the 152.00 neighbourhood, or the YTD peak touched in November.

In the meantime, the 142.00 round figure might continue to act as immediate support ahead of the 141.60 area, or the multi-month low touched last week. Some follow-through selling below the latter will be seen as a fresh trigger for bearish traders and make the USD/JPY pair vulnerable to challenge the 141.00 mark. The downward trajectory could get extended further towards the 140.40 intermediate support before spot prices eventually drop to the 140.00 psychological mark.

On the flip side, any attempted recovery is likely to confront stiff resistance near the 143.00 round figure. That said, a sustained strength beyond could trigger a short-covering rally and allow the USD/JPY pair to reclaim the 144.00 mark. The latter should act as a key pivotal point, which if cleared decisively should pave the way for a further appreciating move, towards the 145.00 psychological mark en route to the 145.50-145.60 resistance and the 146.00 round figure.