Japanese Yen recovers further from Friday’s multi-week low, not out of the woods yet

• The Japanese Yen attracts some buyers and recovers a part of last week’s heavy losses.
• Diminishing odds for an end to BoJ’s negative rates regime in January should cap gains.
• Reduced bets for aggressive Fed easing underpin the USD and lend support to USD/JPY.

The Japanese Yen (JPY) ticks higher against its American counterpart on the first day of a new week, though remains well within the striking distance of over a three-week low touched on Friday. The deadly New Year's Day earthquake in Japan dashed hopes for an end to the Bank of Japan's (BoJ) negative rates regime at this January 22-23 meeting. This, along with a stable performance around the equity markets, might continue to undermine the safe-haven JPY amid a Japanese holiday in observance of Coming-of-Age Day.

The US Dollar (USD), on the other hand, is seen drawing support from diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed). That said, Friday's mixed macro data from the United States (US) holds back the USD bulls from placing fresh bets ahead of this week's release of the latest consumer inflation figures on Thursday. Nevertheless, the aforementioned fundamental backdrop assists the USD/JPY pair to preserve last week's strong gains and trade with a positive bias during the Asian session.

Daily Digest Market Movers: Japanese Yen seems vulnerable on fading hopes of a hawkish BoJ pivot

• The Japanese Yen declined over 2% last week and recorded its worst weekly performance since June 2022 amid fading hopes for an imminent shift in the Bank of Japan's policy shift later this month.
• A robust December US jobs report further raises uncertainty over the Federal Reserve's rate cuts trajectory, which underpinned the US Dollar and lifted the USD/JPY pair to a three-week high on Friday.
• The headline NFP print showed that the US economy added 216K new jobs last week as compared to 170K expected, while the unemployment rate held steady at 3.7% vs. an uptick to 3.8% anticipated.
• The upbeat data was offset by the Institute for Supply Management (ISM) survey, which indicated that the US services sector, which accounts for more than two-thirds of the economy, slumped last month.
• The ISM's Non-Manufacturing Index dropped to 50.6 in December – the lowest reading since May – and the employment sub-component plunged to 43.3 – the lowest since July 2020 – from 50.7 in November.
• Separately, US Factory Orders increased more than expected in November, by 2.6% after declining 3.4% in October, though did little to impress the USD bulls or provide any meaningful impetus.
• The data suggested that the world's largest economy showed pockets of weakness, though remained resilient overall, forcing investors to scale back bets for more aggressive easing by the Federal Reserve.
• Adding to this, Dallas Fed President Lorie Logan noted that if the US central bank does not maintain sufficiently tight financial conditions, there is a risk that inflation will pick back up, reversing progress.
• This comes after Richmond Fed President Thomas Barkin last week expressed confidence that the economy is on its way to a soft landing and said that rate hikes remain on the table.
• The markets, however, are still pricing in a greater chance of the first interest rate cut by the Fed at the March policy meeting and a cumulative of five 25 basis points (bps) rate cuts for 2024.
• This is holding back the USD bulls from positioning for any further appreciating move and keeps a lid on the USD/JPY pair as the focus now shifts to the US consumer inflation figures on Thursday.
• An agreement on a topline spending level has been reached by House Speaker Mike Johnson and Senate Majority Leader Chuck Schumer, breaking the deadlock to avoid a government shutdown.

Technical Analysis: USD/JPY retreats further from a multi-week high, trades below 38.2% Fibo. level

From a technical perspective, Friday's failure near the 50% Fibonacci retracement level of the November-December downfall warrants caution for bullish traders. Moreover, oscillators on the daily chart – though recovered from the bearish territory – are yet to confirm a positive bias. Hence, it will be prudent to wait for some follow-through buying beyond the multi-week high, around the 146.00 mark, before positioning for an extension of the USD/JPY pair's recent recovery from the 140.25 region, or a multi-month trough touched in December. The subsequent move up has the potential to lift spot prices beyond the 146.55 intermediate hurdle, towards reclaiming the 147.00 mark en route to the 147.40-147.45 confluence, comprising the 61.8% Fibo. level and the 100-day Simple Moving Average (SMA).

On the flip side, the 144.00 mark is likely to protect the immediate downside ahead of Friday's swing low, around the 143.80 region, and the 200-day SMA, currently pegged near the 143.25 zone. A convincing break below the latter might shift the near-term bias back in favour of bearish traders and make the USD/JPY pair vulnerable to test the next relevant support near the 142.35-142.30 horizontal zone before eventually dropping to the 142.00 round figure. The downward trajectory could get extended further towards the 141.75 support en route to the 141.00 mark and the multi-month low, around the 140.25 region.