Japanese Yen adds to overnight modest gains; USD/JPY drops to 143.00 neighbourhood

• The Japanese Yen scales higher for the second straight day amid reviving safe-haven demand.
• The BoJ’s dovish stance might cap gains for the JPY and help limit losses for the USD/JPY pair.
• The market focus remains glued to the key inflation data from Japan and the US, due on Friday.

The Japanese Yen (JPY) ticks higher against its American counterpart for the second straight day on Thursday, with the USD/JPY pair moving back closer to the 143.00 round figure during the Asian session. A turnaround in the global risk sentiment, as depicted by the overnight abrupt sell-off in the US equity markets, is seen as a key factor benefitting the JPY's relative safe-haven status. That said, the Bank of Japan's (BoJ) decision to maintain its ultra-dovish stance earlier this week might keep a lid on any further gains for the domestic currency.

The US Dollar (USD), on the other hand, is underpinned by the upbeat US macro data released on Wednesday and the fact that Federal Reserve (Fed) officials have been pushing back against the idea of rapid rate cuts next year. This is seen as another factor lending support to the USD/JPY pair. Meanwhile, the markets seem convinced that the Fed will start cutting rates as early as March 2024. Apart from this, the global flight to safety drags the yield on the benchmark 10-year US government bond to its lowest level since July, which could cap the buck.

Traders might also refrain from placing aggressive directional bets ahead of the Japanese inflation data and the US Core Personal Consumption Expenditure (PCE) Price Index – the Fed's preferred inflation gauge – on Friday. The inflation data will, in turn, play a key role in determining the next leg of a directional move for the USD/JPY pair. In the meantime, Thursday's US economic docket – featuring the final Q3 GDP print, the usual Weekly Initial Jobless Claims and the Philly Fed Manufacturing Index – will be looked upon for short-term opportunities.

Daily Digest Market Movers: Japanese Yen attracts haven flows amid a turnaround in risk sentiment

• The overnight slump on Wall Street, breaking a nine-day winning streak, is seen as a key factor underpinning the safe-haven Japanese Yen and weighing on the USD/JPY pair.
• Japan's Cabinet Office published its twice-yearly economic outlook and estimated real economic growth rate for fiscal 2023/24 at 1.6%, up from 1.3% seen half a year ago.
• Economic growth projection for the fiscal 2024/25 was also bumped up to 1.3%, slightly higher than the previous estimate of 1.2%, further benefiting the JPY.
• The Bank of Japan's (BoJ) decision earlier this week to stick to its ultra-loose monetary policy settings should keep a lid on any meaningful appreciating move for the JPY.
• The BoJ also made no changes to its dovish policy guidance, while Governor Kazuo Ueda gave no clear hints on the timing of an exit from the negative interest rates policy.
• The uncertainty over the timing of when the Federal Reserve will begin easing, along with Wednesday's upbeat US macro data, lends some support to the US Dollar.
• A slew of influential Fed officials recently tried to downplay bets that the US central bank will completely pivot away from its hawkish stance despite still-elevated inflation.
• The Conference Board reported that the US Consumer Confidence Index surged in December by the most since early 2021, to 110.7 from the downwardly revised 101 a month earlier.
• US Existing Home Sales unexpectedly rose in November, by 0.8% from the prior month to a seasonally adjusted annualized rate of 3.82 million units, ending five straight monthly declines.
• Investors are still pricing in the possibility of an early interest rate cut by the Fed in 2024, dragging the US bond yields to a fresh multi-month low and capping the Greenback.
• Traders now look to the final US Q3 GDP print, which, along with the usual Weekly Jobless Claims and the Philly Fed Manufacturing Index, might provide some impetus.
• The market attention will then turn to the release of the National Core CPI from Japan and the US Core PCE Price Index – the Fed's preferred inflation gauge – on Friday.

Technical Analysis: USD/JPY could find decent support near 200-day SMA, around 142.70 region

From a technical perspective, the recent failures ahead of the 145.00 psychological mark, coinciding with the 38.2% Fibonacci retracement level of the November-December downfall, and the subsequent slide warrant some caution for bulls. That said, any further decline could find some support near the 143.00 mark. This is followed by the very important 200-day Simple Moving Average (SMA), currently around the 142.70 region. A convincing break below the latter could make the USD/JPY pair vulnerable to accelerate the downward trajectory towards the 142.00 mark en route to the 141.75 horizontal support and sub-141.00 levels, or a multi-month low touched last week.

On the flip side, the 143.85 region now seems to act as an immediate strong resistance ahead of the 144.00 level, which if cleared should allow the USD/JPY pair to make a fresh attempt towards conquering the 145.00 mark. Some follow-through buying will suggest that spot prices have formed a near-term bottom and pave the way for a move beyond the mid-145.00s, towards the 146.00 round figure and the 50% Fibo. level, around the 146.40 region.