Japanese Yen retreats further from one-week peak, looks to US GDP for fresh impetus

• The Japanese Yen edges lower against the USD on Thursday, albeit lacks follow-through selling.
• The risk-on mood and the recent widening of the US-Japan rate differential, undermine the JPY.
• Delayed Fed rate cut bets remain supportive of elevated US bond yields and favour the USD bulls.
• Traders now look to the US GDP ahead of the key inflation data from Japan and the US on Friday.

The Japanese Yen (JPY) recorded strong gains on Wednesday and strengthened to over a one-week high against its American counterpart in the wake of the Bank of Japan's (BoJ) hawkish tilt. Bulls, however, struggle to capitalize on the momentum amid the underlying bullish sentiment across the global equity markets, which tends to undermine the JPY's relative safe-haven status. Apart from this, the recent widening of the US-Japan rate differential, bolstered by expectations that the Federal Reserve (Fed) will not rush to cut interest rates, turns out to be another factor acting as a headwind for the JPY.

That said, the Bank of Japan's (BoJ) hawkish tilt earlier this week, suggesting that conditions for phasing out huge stimulus and pulling short-term interest rates out of negative territory were falling into place, should limit losses for the JPY. Traders might also refrain from placing aggressive directional bets ahead of important US macro releases – the Advance Q4 GDP print and the Personal Consumption Expenditures (PCE) Price Index, due on Thursday and Friday, respectively. This warrants caution for the JPY bears and keeps the USD/JPY pair confined in a familiar trading range held over the past week or so.

Daily Digest Market Movers: Japanese Yen could draw some support from BoJ’s hawkish tilt

• The Japanese Yen moves away from over a one-week high touched on Wednesday and is undermined by a combination of factors, though the Bank of Japan's hawkish tilt should act as a tailwind.
• The upbeat market sentiment gets an additional lift after the People's Bank of China announced to reduce the Reserve Requirement Ratio by 50 bps starting from February 5 to boost the economy.
• The yield on the benchmark 10-year US government bond shot back closer to the monthly top in reaction to the upbeat US data, which lends support to the US Dollar and the USD/JPY pair.
• The S&P Global flash US Manufacturing PMI rebounded from 47.9 to a 15-month high of 50.3 in January, while the gauge for the services sector climbed to 52.9, or the highest reading since last June.
• Furthermore, the flash US Composite PMI Output Index increased to 52.3 this month, or the highest since last June, suggesting that the world's largest economy kicked off 2024 on a stronger note.
• This comes on top of the upbeat consumer spending and labor market data released last week, forcing investors to further scale back their expectations for an early interest rate cut by the Federal Reserve.
• BoJ Governor Kazuo Ueda laid the groundwork for monetary policy normalisation on Tuesday and said that the likelihood of sustainably achieving the 2% inflation target was gradually increasing.
• The head of Japan's biggest business lobby Keidanren called for wage hikes this year that exceed the inflation rate, paving the way for the BoJ to pivot away from its ultra-easy monetary policy settings.
• Traders now look to the Advance US Q4 GDP report, which is expected to show that growth in the world's largest economy decelerated to a 2% annualized pace from 4.9% in the previous quarter.
• Thursday's US economic docket also features the release of Durable Goods Orders and the usual Weekly Initial Jobless Claims, which might provide some impetus to the buck and the USD/JPY pair.
• The market attention will then shift to the release of the Tokyo core CPI and the US Personal Consumption Expenditures Price Index data – the Fed's preferred inflation gauge – on Friday.

Technical Analysis: USD/JPY continues to show some resilience below the 100-day SMA

From a technical perspective, this week's repeated failures to find acceptance below the 100-day Simple Moving Average (SMA) and the subsequent rebounds suggest that the path of least resistance for the USD/JPY pair is to the upside. That said, any further move up is likely to confront some resistance near the 148.00 round figure ahead of the 148.20-148.25 region. The next relevant hurdle is pegged near the 148.80 region, or a multi-week high touched last Friday, which if cleared will be seen as a fresh trigger for bullish traders. Given that oscillators on the daily chart are holding comfortably in the positive territory, spot prices might then aim to surpass an intermediate hurdle near the 149.30-149.35 zone and reclaim the 150.00 psychological mark.

On the flip side, weakness below the 100-day SMA, currently around the 147.55 region, might continue to attract some buyers near the 147.00 mark. This should help limit the downside for the USD/JPY pair near the 146.45 zone, or the weekly trough touched the previous day. Some follow-through selling, however, will negate the positive bias and shift the near-term bias in favour of bearish traders, paving the way for a slide towards testing the 146.10-146.00 horizontal support. The downward trajectory could extend further towards the 145.30-145.25 intermediate support en route to the 145.00 psychological mark.