Japanese Yen reverses part of post-US CPI slump after verbal intervention from Japan

• The Japanese Yen strengthens a bit in reaction to verbal intervention by Japanese authorities.
• The risk-off impulse further benefits the safe-haven JPY and exerts some pressure on USD/JPY.
• The hotter US CPI print on Tuesday reaffirms hawkish Fed expectations and favours the USD bulls.

The Japanese Yen (JPY) ticks higher against its American counterpart during the Asian session on Wednesday and recovers a part of the previous day's heavy losses to a three-month low. A slump below the 150.00 psychological mark prompted some verbal intervention from the Japanese authorities, which, along with the risk-off impulse, is seen lending some support to the safe-haven JPY. That said, the recent dovish remarks by the Bank of Japan (BoJ) Deputy Governor Shinichi Uchida might hold back bulls from placing aggressive bets. Apart from this, a strong bullish tone around the US Dollar (USD) might also contribute to limiting the downside for the USD/JPY pair.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, rallied to its highest level since November 14 after hot US consumer inflation figures on Tuesday lifted bets that the Federal Reserve (Fed) will keep rates higher for longer. The hawkish outlook remains supportive of elevated US Treasury bond yields, widening the US-Japan rate differential and validating the negative outlook for the JPY. This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the upside. Hence, any meaningful corrective decline might still be seen as a buying opportunity in the absence of any relevant market-moving economic releases from the US on Wednesday.

Daily Digest Market Movers: Japanese Yen attracts buyers after verbal intervention from the Japanese authorities

• The Japanese Yen trims a part of Tuesday's post-US CPI fall to a three-month low after Japan’s top currency diplomat Masato Kanda reiterated that authorities stand ready to take steps in the FX market if needed.
• Furthermore, Japan's Finance Minister Shunichi Suzuki said that rapid FX moves are undesirable and that the government is watching the market with even stronger urgency, though made no comments on intervention.
• A hotter-than-expected US inflation report cooled expectations for a more aggressive rate-cutting cycle by the Federal Reserve, pushing US Treasury bond yields higher and tempering investors' appetite for riskier assets.
• The Labor Department’s Bureau of Labor Statistics reported on Tuesday that the headline US CPI rose by 0.3% in January as compared to the 0.2% previous and softened to the 3.1% YoY rate from the 3.4% in December.
• The reading was above market expectations for a reading of 2.9% and was accompanied by stronger Core CPI print, which rose 3.9% during the reported month, matching December's increase and surpassing estimates for 3.7%.
• Investors have all but priced out a March rate cut and the possibility for a move in May has declined to around 35% from over 60% the previous day, while the Fed is now expected to start cutting rates at the June policy meeting.
• The yield on the benchmark 10-year US government bond reached its highest level since December 1 and lifted the US Dollar to a three-month peak, supporting prospects for a further appreciating move for the USD/JPY pair.

Technical Analysis: USD/JPY bulls might still aim towards retesting multi-decade peak, around the 152.00 mark

From a technical perspective, the overnight strong move-up was seen as a fresh trigger for bulls and might have already set the stage for additional gains. That said, the Relative Strength Index (RSI) on the daily chart is hovering close to the overbought zone and warrants some caution. Any further corrective slide, however, is likely to attract fresh buyers near the 150.30 area, which should limit losses for the USD/JPY pair near the 150.00 mark. The latter should act as a key pivotal point, which if broken might prompt some technical selling and drag spot prices further towards the 149.65-149.60 region.

On the flip side, the 150.90 area, or a multi-month peak touched on Tuesday, now seems to act as an immediate hurdle. A sustained strength beyond could lift the USD/JPY pair further towards the 151.45 intermediate hurdle en route to the 152.00 neighbourhood, or a multi-decade peak set in October 2022 and retested in November 2023.