Japanese Yen rallies to its highest level since September 14 against the US Dollar

• The Japanese Yen strengthens to a two-and-half-month high against the US Dollar on Wednesday.
• Dovish Fed expectations drag the US bond yields lower and continue to weigh on the Greenback.
• The increasing likelihood of a policy shift by the BoJ underpins the JPY and exerts pressure on USD/JPY.

The Japanese Yen (JPY) continues to benefit from the prevalent US Dollar (USD) selling bias, with the USD/JPY pair dropping below the 147.00 mark for the first time since September 14 during the Asian session on Wednesday. The underlying inflation in the United States (US) showed signs of slowing in October and reinforced the market view that the Federal Reserve (Fed) was probably done raising interest rates. Adding to this, dovish remarks from some Fed officials on Tuesday boosted rate cut bets and triggered a fresh leg down in the US Treasury bond yields, dragging the USD to a 3-1/2-month low.

The JPY, on the other hand, is underpinned by strengthening expectations that the end of the Bank of Japan’s (BoJ) negative interest rate policy is approaching. The bets were lifted by data last week, which showed that Japan’s key inflation measure accelerated for the first time in four months and stayed above the BoJ's 2% target for the 19th straight month. This is seen as another factor contributing to the USD/JPY pair's downfall for the fourth successive day. That said, a positive risk tone, which tends to dent demand for safe-haven assets, including the JPY, could lend some support and help limit losses.

Daily Digest Market Movers: Japanese Yen remains supported by weaker USD and hawkish BoJ expectations

• Federal Reserve Governor Michelle Bowman said on Tuesday that she remains willing to support raising interest rates should the incoming data indicate that progress on inflation has stalled.
• New York Fed President John Williams said that longer-term inflation expectations have been encouragingly steady, but did not make any forward-looking comments about monetary policy.
• Fed Governor Christopher Waller said that there are good economic arguments that if inflation continues to decline for several more months, it is possible to lower the policy rate.
• Waller added that he was increasingly confident that policy is currently well positioned to slow the economy and get inflation back to the central bank's 2% target.
• The dovish remarks reaffirm the market view that the Fed is done with its policy-tightening campaign and may begin cutting interest rates in the middle of 2024.
• On the economic data front, the Conference Board's US Consumer Confidence Index rose to 102 in November from the previous month's downwardly revised reading of 99.1.
• Consumers' 12-month inflation expectations fell to 5.7% from 5.9% in October, in contrast to the University of Michigan's survey last week that long-term inflation expectations rose in November to levels last seen in 2011.
• The Bank of Japan, meanwhile, will almost certainly end its negative interest rate policy by early next year in the wake of persistently high inflationary pressures.

Technical Analysis: USD/JPY seems vulnerable to slide further, 100-day SMA support breakdown in play

From a technical perspective, a break below the 100-day Simple Moving Average (SMA) pivotal support near the 147.00 mark could be seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart have been gaining negative traction and are still far from being in the oversold territory. This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the downside and supports prospects for deeper losses. Hence, a subsequent fall towards the 146.50-146.40 intermediate support, en route to the 146.00 round figure, looks like a distinct possibility.

On the flip side, any recovery attempt now seems to confront stiff resistance and remain capped near the 147.30-147.35 barrier. That said, a sustained strength beyond might trigger a short-covering rally and allow the USD/JPY pair to reclaim the 148.00 round figure. The momentum, however, runs the risk of fizzling out rather quickly near the 148.30 strong horizontal support breakpoint, now turned resistance.