Japanese Yen remains on front foot amid hopes of a BoJ pivot, despite weaker GDP print

• The Japanese Yen surged to a four-month top against the USD after BoJ Governor Ueda’s comments on Thursday.
• The JPY bulls largely shrugged off data showing that Japan’s economy contracted more than initially estimated in Q3.
• Fed rate cut bets trigger a sharp USD corrective slide from a two-week high and further exert pressure on USD/JPY.

The Japanese Yen (JPY) rallied over 3.5% intraday, to its strongest level in four months against the US Dollar (USD) after Bank of Japan (BoJ) Governor Kazuo Ueda spoke about options when considering a move away from negative interest rates on Thursday. Ueda's comments reinforced expectations that the BoJ will wind down its ultra-dovish, stimulus-heavy policies in 2024. This, along with a sharp USD pullback from a two-week high touched on Wednesday, led to the USD/JPY pair's overnight slump to its lowest level since August.

Ueda, however, emphasized the necessity of continuing the loose monetary policy in the near term amid signs that the Japanese economy was cooling further. Apart from this, the risk-on rally in the US equity markets forced the safe-haven JPY to trim a part of its strong intraday gains and allowed the USD/JPY pair to rebound nearly 250 pips from the vicinity of mid-141.00s to end the day around the 144.00 round figure.

The USD/JPY pair, however, struggles to capitalize on the recovery move and meets with a fresh supply during the Asian session on Friday. Firming expectations about an imminent shift in the BoJ’s policy shift continue to underpin the JPY, which seems unaffected by a downward revision to Japan’s third-quarter GDP print. Apart from this, hopes for a dovish Federal Reserve (Fed) keep the USD bulls on the defensive and contribute to the fall.

Daily Digest Market Movers: Japanese Yen retains its bullish bias in the wake of BoJ Governor Ueda’s hawkish message on Thursday

• The Japanese Yen recorded its biggest one-day rally against the US Dollar on Thursday in reaction to Bank of Japan Governor Kazuo Ueda's faintly hawkish messaging about ending the ultra-loose monetary policy.
• Ueda pinned down the spring wage negotiations as the potential turning point on policy and told PM Kishida that the central bank hopes to see whether wages will rise sustainably and whether wage rises will push up service prices.
• Ueda earlier said that they have not yet reached a situation in which they can achieve the price target sustainably, stably and with sufficient certainty, and noted that stimulus measures are supporting the Japanese economy.
• The JPY bulls, meanwhile, shrugged off the dismal domestic data released on Friday, which showed that Japan's economy contracted by a 2.9% YoY pace in the third quarter, worse than the initial estimate of a 2.1% drop.
• On a quarterly basis, Japan's GDP shrank by 0.7% during the July-September period as compared to the 0.5% fall reported originally and a median forecast for a 0.5% decline.
• Growing acceptance that the Federal Reserve is done raising interest rates and may start easing its policy by the first half of 2024 prompted fresh USD selling, contributing to the USD/JPY pair's overnight steep decline.
• Investors now look forward to the crucial US NFP report, which is expected to show that the economy added 180K jobs in November and the unemployment rate held steady at 3.9%, for some meaningful impetus.

Technical Analysis: USD/JPY languishes near multi-month low, bears turn cautious amid oversold RSI on the daily chart

From a technical perspective, spot prices on Thursday showed some resilience below the 61.8% Fibonacci retracement level of the July-November rally and the very important 200-day Simple Moving Average (SMA). The subsequent recovery, however, struggles to find acceptance above the 144.00 round figure, which should now act as a key pivotal point for short-term traders. With the Relative Strength Index (RSI) on the daily chart flashing oversold conditions, a sustained strength beyond might trigger a short-covering rally and allow the USD/JPY pair to reclaim the 145.00 psychological mark.

On the flip side, the Asian session low, around mid-142.00s, coinciding with the 61.8% Fibo. level now seems to protect the immediate downside. This is closely followed by the 200-day SMA, currently near the 142.30 region, below which the USD/JPY pair could slide below the 142.00 mark and retest the multi-month trough, around the 141.60 region touched the previous day. The downward trajectory could get extended further towards the 141.00 mark en route to the 140.80-140.75 zone.