Japanese Yen drifts lower against USD amid reduced bets for March Fed rate cut, BoJ pivot

• The Japanese Yen gives up some of its recent strong gains against the US Dollar.
• Reduced bets for an imminent shift in the BoJ’s policy shift undermine the JPY.
• The USD draws support from Friday’s better-than-expected US monthly job data.
• The market attention now shifts to the US CPI and the FOMC decision this week.

The Japanese Yen (JPY) kicks off the new week on a softer note amid reports that Bank of Japan (BoJ) Governor Kazuo Ueda's comments last week were taken out of context and not meant to signal anything about the timing of a policy change. Adding to this, the weaker GDP report pointed to Japan's still fragile economy, suggesting that market expectations of an imminent rate hike may be overblown. In contrast, stronger monthly employment figures from the United States (USD) made traders bet that it could take the Federal Reserve (Fed) until May to begin a series of interest-rate cuts next year. This, in turn, lends some support to the US Dollar (USD) allowing the USD/JPY pair to build on Friday's goodish recovery from mid-142.00s and gain positive traction for the second successive day on Monday.

Investors, meanwhile, seem convinced that the end to BoJ's decades of super-low interest rates may be nearing. This, along with concerns about a deeper global economic downturn, might continue to benefit the JPY's relative safe-haven status and cap any meaningful appreciating move for the USD/JPY pair. Traders might also refrain from placing aggressive directional bets ahead of this week's key data/event risks. The latest US consumer inflation figures are due for release on Tuesday and will be followed by the crucial FOMC monetary policy decision on Thursday. This would play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the major. Hence, it will be prudent to wait for strong follow-through buying before confirming that spot prices have bottomed out.

Daily Digest Market Movers: Japanese Yen continues losing traction amid hopes that BoJ will delay exit from easy policy

• A Reuters report, citing three sources familiar with the matter, said that Bank of Japan Governor Kazuo Ueda's comments last week were not meant to signal an imminent policy shift.
• This, along with data showing that Japan's economy contracted more sharply than first estimated in the third quarter, by an annualized 2.9%, is seen undermining the Japanese Yen.
• The US Bureau of Labor Statistics (BLS) reported on Friday that the economy added 199K new jobs in November as compared to the 150K in the previous month and 180K anticipated.
• Additional details of the publication revealed that the Unemployment Rate declined to 3.7% from 3.9% in October, despite a rise in the Labor Force Participation Rate to 62.8% from 62.7%.
• Annual wage inflation, as measured by the change in Average Hourly Earnings, matched consensus estimates and held steady at 4% during the reported month.
• The upbeat US employment figures forced investors to scale back their expectations for an early interest rate cut by the Federal Reserve, as early as March 2024.
• Investors now look forward to the latest US consumer inflation figures on Tuesday, which could influence market expectations about a series of Fed rate cuts next year.
• The US central bank is also scheduled to announce its policy decision at the end of a two-day policy meeting on Wednesday and is anticipated to maintain the status quo.
• The market focus, meanwhile, will be on the so-called "dot plots" and Fed Chair Jerome Powell's comments at the post-meeting press conference.

Technical Analysis: USD/JPY recovers further from the multi-month low touched last Thursday, upside potential seems limited

From a technical perspective, the USD/JPY pair last week showed some resilience below the very important 200-day Simple Moving Average (SMA). The subsequent move beyond the 23.6% Fibonacci retracement level of the recent decline from the 152.00 neighbourhood, or the YTD peak, favours bullish traders. The momentum, however, paused ahead of the 38.2% Fibo. level during the Asian session on Monday, which if cleared should allow spot prices to reclaim the 146.00 mark. The momentum could get extended further, though is more likely to remain capped near the 50% Fibo. level, around the 146.80 region. 

Meanwhile, oscillators on the daily chart are holding deep in the negative territory and support prospects for the emergence of some selling at higher levels. That said, the 145.00 psychological mark might now protect the immediate downside ahead of the 144.55-144.50 area, or the 50% Fibo. level and the 144.00 round figure. Failure to defend the said support levels could make the USD/JPY pair vulnerable to accelerate the slide further towards retesting sub-143.00 levels, or the 61.8% Fibo. level. This is followed by the 200-day SMA, currently around the 142.35 region, the 142.00 mark and the 141.60 region, or the multi-month low touched last Thursday. Some follow-through selling below the latter will be seen as a fresh trigger for bearish traders and pave the way for a further near-term depreciating move for the USD/JPY pair.