Japanese Yen moves little after Tokyo CPI, focus remains glued to US PCE Price Index

• The Japanese Yen consolidates against the USD amid mixed fundamental cues.
• The softer Tokyo Core CPI, along with a positive risk tone, undermines the JPY.
• Subdued USD price action fails to provide impetus ahead of the US PCE data.

The Japanese Yen (JPY) ticks lower against its American counterpart during the Asian session on Friday after data showed that consumer inflation in Japan's national capital decelerated sharply in January. In fact, the Tokyo core Consumer Price Index (CPI) fell below the Bank of Japan's (BoJ) 2% target for the first time in nearly two years. This, in turn, validates policymakers' view that cost-push pressures will continue to ease in coming months and tempers expectations for an imminent shift in the central bank's policy stance. Adding to this, minutes of the December BoJ meeting revealed that board members agreed to patiently maintain the easy policy, which, along with the prevalent risk-on mood, undermines the JPY's relative safe-haven status.

Meanwhile, investors expect that another substantial round of pay hikes by Japanese firms could fuel consumer spending and demand-driven inflation. This could allow the BoJ to pivot away from its ultra-loose monetary policy settings and negative interest rates regime. Furthermore, geopolitics remains the biggest risk for the markets, which, along with the uncertain global economic outlook, helps limit losses for the JPY. Any meaningful appreciating move, however, seems elusive in the wake of the underlying bullish tone surrounding the US Dollar (USD), bolstered by reduced bets for an early interest rate cut by the Federal Reserve (Fed). This, in turn, warrants caution before placing aggressive directional bets around the USD/JPY pair.

Traders might also prefer to wait on the sidelines ahead of Friday's release of the US Personal Consumption Expenditures Price Index, due later during the early North American session. The crucial inflation data will play a key role in influencing the Fed's future policy decisions, which, in turn, will drive the USD demand in the near term and provide some meaningful impetus to the USD/JPY pair. Nevertheless, spot prices remain on track to post modest losses for the first week in the previous four as the focus now shifts to the highly-anticipated FOMC monetary policy meeting on January 30-31.

Daily Digest Market Movers: Japanese Yen traders seem non-committed ahead of US PCE Price Index

• The Japanese Yen remains depressed after the Statistics Bureau reported that the Tokyo core CPI, which excludes volatile fresh food prices, decelerated from 2.1% to 1.6% annualized pace in January, or the lowest in nearly two years.
• A core figure that excludes both volatile fresh food and energy prices and is closely watched by the Bank of Japan as a gauge of the underlying inflation rose by 3.1% from a year earlier as compared to the 3.5% rise in the prior month.
• Overall CPI inflation in Tokyo grew by a 1.6% YoY rate in January, down from a 2.7% increase in the previous month, also hitting its lowest level since March 2022 and dashing hopes for an imminent shift in the BoJ's policy stance.
• The minutes of the December BoJ meeting showed that board members agreed on the need to deepen the debate on the timing of an exit from its ultra-loose monetary policy, which, in turn, helps limit deeper losses for the JPY.
• Investors further scaled back expectations for a more aggressive policy easing by the Federal Reserve after data released on Thursday showed that the US economy grew at a faster-than-anticipated rate in the fourth quarter.
• The world's largest economy expanded at an annual rate of 3.3% during the September-December period, validating the view that the economy is in good shape and giving the Fed more headroom to keep rates higher for longer.
• Additional details of the report indicated that inflation pressures are receding and supported bets that the economy is likely to avoid a recession, dragging the US Treasury bond yields lower and capping gains for the US Dollar.
• Traders now look to the US Personal Consumption Expenditures Price Index for cues about the Fed's future policy decisions, which will drive the USD and provide a fresh impetus to the USD/JPY pair on the last day of the week.

Technical Analysis: USD/JPY extends its consolidative price move around the 100-day SMA support

From a technical perspective, spot prices, so far, have managed to defend the 100-day Simple Moving Average (SMA) pivotal support near the 147.55 region. Any further decline is more likely to attract some buyers near the 147.00 round figure, which should help limit the downside for the USD/JPY pair near the 146.45 area, or the weekly trough touched on Wednesday. Some follow-through selling, however, will shift the near-term bias in favour of bearish traders and pave the way for a slide towards 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

On the flip side, the 148.00 mark is likely to act as an immediate barrier ahead of the 148.20-148.25 region. The next relevant resistance 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, the USD/JPY pair might then aim to surpass an intermediate hurdle near the 149.30-149.35 zone and reclaim the 150.00 psychological mark.