Japanese Yen traders remain on the sidelines, looks to Fed decision for fresh impetus

• The Japanese Yen attracts haven flows amid geopolitical risks stemming from the Middle East conflict.
• The USD extends its range-bound price action and further exerts downward pressure on USD/JPY.
• Traders now seem reluctant to place aggressive directional bets ahead of the FOMC policy decision.

The Japanese Yen (JPY) regains positive traction during the Asian session on Wednesday and trades near the weekly top against its American counterpart touched the previous day. Worries that the deepening conflict in the Middle East could trigger a wider war in the region help offset disappointing Japanese macro data and underpin the safe-haven JPY. In fact, Japan's Retail Sales and Industrial Production figures fell short of market expectations, giving the Bank of Japan (BoJ) more reason to delay the discussions about exiting negative interest rates. The JPY bulls even shrugged off the BoJ's Summary of Opinions report from the meeting held on January 22-23, which indicated no imminent change in the policy stance.

Meanwhile, the recent decline in the US Treasury bond yields has resulted in the narrowing of the US-Japan rate differential and turns out to be another factor lending some support to the JPY. The US Dollar (USD), on the other hand, remains confined in a familiar range amid the uncertainty over the timing of when the Federal Reserve (Fed) will start cutting interest rates and further contributes to the offered tone surrounding the USD/JPY pair. The downside, however, remains cushioned as traders opt to wait on the sidelines ahead of the highly-anticipated FOMC policy decision later today. Heading into the key central bank event risk, the fundamental backdrop warrants some caution before placing aggressive directional bets.

Daily Digest Market Movers: Japanese Yen benefits from geopolitical tensions, lacks follow-through ahead of Fed decision

• The risk of a further escalation of military action in the Middle East benefits the safe-haven Japanese Yen and exerts pressure on the USD/JPY pair during the Asian session on Wednesday.
• The JPY bulls seem unaffected by rather unimpressive Japanese Retail Sales and Industrial Production figures for December and also shrugged off the Bank of Japan's Summary of Opinions.
• Government data showed that Japanese Retail Sales grew by 2.1% in December, marking the 22nd straight month of increase, though fell short of consensus estimates for a 5.1% rise.
• Japan’s factory output rebounded in December and increased by 1.8% from November, representing the biggest gain since June, though it fell short of expectations for a 2.4% growth.
• Japanese government officials said that the January production forecast is expected to decline due to a partial auto plant suspension and that the Noto earthquake had a limited impact on output planning.
• The Bank of Japan's Summary of Opinions report from the January 2024 monetary policy meeting suggested that the central bank must patiently maintain monetary easing under YCC.
• The US Dollar continues with its struggle to gain any meaningful traction as traders opt to wait for more cues about the Federal Reserve's rate-cut path amid a still resilient US economy.
• The Job Openings and Labor Turnover Survey (JOLTS) report published by the Bureau of Labor Statistics on Tuesday showed that US job openings unexpectedly increased in December.
• The number of job openings on the last business day of December stood at 9.02 million, suggesting that the labor market is too strong for the Fed to start cutting interest rates in the first quarter.
• The markets have lowered the odds of a rate cut in March to well below 50%, though the USD fails to attract buyers ahead of the highly-anticipated FOMC policy decision later this Wednesday.
• The Fed is universally anticipated to leave its key interest rates unchanged, though the accompanying policy statement will be scrutinized for cues about the timing of the first interest rate cut.

Technical Analysis: USD/JPY struggles for a firm near-term direction, remains confined in a range around 100-day SMA

From a technical perspective, the USD/JPY pair has been oscillating in a familiar range around the 100-day Simple Moving Average (SMA) over the past two weeks or so. This points to indecision among traders over the next leg of a directional move and warrants some caution. In the meantime, the 147.00 mark could protect the immediate downside and any subsequent slide is likely to find decent support near last week's swing low, around the 146.65 region. Some follow-through selling, however, will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.

On the flip side, the 147.65 area could act as an immediate hurdle ahead of the 148.00 round figure and the 148.30-148.35 zone. The next relevant hurdle is pegged near the monthly peak, around the 148.80 region. Given that oscillators on the daily chart are holding comfortably in the positive territory, a sustained strength beyond the latter will be seen as a fresh trigger for bullish traders. The USD/JPY pair might then surpass the 149.00 mark and climb to the 149.30-149.35 intermediate hurdle before aiming towards reclaiming the 150.00 psychological mark.