Japanese Yen consolidates overnight losses, US macro data and FOMC minutes in focus

• The Japanese Yen continues to draw support from expectations for a shift in the BoJ’s policy stance.
• A softer risk tone further benefits the safe-haven JPY and caps USD/JPY amid subdued USD demand.
• Investors now look to the US economic data for some impetus ahead of the FOMC meeting minutes.

The Japanese Yen (JPY) attracts some buyers during the Asian session on Wednesday and reverses a part of the previous day's heavy losses against the US Dollar (USD). As investors assess the impact of a powerful New Year's Day earthquake in Japan, the anticipation of a reversal in policy divergence between the Bank of Japan (BoJ) and the Federal Reserve (Fed) in 2024 lends some support to the JPY. In fact, the BoJ is anticipated to abandon its ultra-loose monetary policy settings, while the US central bank is expected to deliver a series of interest rate cuts throughout the year.

This, along with a softer risk tone, benefits the JPY's relative safe-haven status and fails to assist the USD/JPY pair to capitalize on the overnight rally of over 140 pips from the 140.80 area. The USD, on the other hand, consolidates Tuesday's strong gains – its biggest daily percentage rise since October – and remains well supported by higher US Treasury bond yields. This, in turn, might hold back traders from placing aggressive bearish bets around the USD/JPY pair ahead of the FOMC meeting minutes, scheduled to be released later during the US session.

In the meantime, Wednesday's US economic docket also highlights the ISM Manufacturing PMI and JOLTS Job Openings data might provide some impetus to the USD/JPY pair. The market attention will then shift to the US ADP report on private-sector employment, followed by the official Nonfarm Payrolls (NFP) on Thursday and Friday, respectively. The key labor market reports will shape expectations about the Fed's next policy move, which will play a key role in influencing the USD price dynamics and determining the near-term trajectory for the major.

Daily Digest Market Movers: Japanese Yen reverses a part of the overnight slide against the USD

• The initial market reaction to a 7.6 magnitude earthquake in Japan on Monday fades rather quickly amid expectations of a hawkish shift in the Bank of Japan's policy stance.
• The BoJ is anticipated to exit its ultra-loose policy in April, after the annual wage negotiations in March, though the possibility of such a move in January cannot be ruled out.
• Meanwhile, the Federal Reserve is widely expected to start cutting interest rates as early as March and deliver 150 basis points (bps) of cumulative rate cuts by the year-end.
• The overnight sharp move up in the US Treasury bond yields, however, reflected doubts that the Fed will deliver the extent of monetary easing that is priced in the markets.
• The yield on the benchmark 10-year US government bond rose above 4.0% for the first time in two weeks on Tuesday and provided a strong boost to the US Dollar.
• Rising US bond yields weighed on growth stocks and triggered a corrective decline in the US equity markets, benefitting the safe-haven JPY and capping the USD/JPY pair.
• Traders now look to the US ISM Manufacturing PMI and JOLTS Job Openings data ahead of the FOMC minutes, which will be scrutinized to ascertain the timing of potential rate cuts.
• The market attention will then shift to the ADP's US private-sector employment report on Thursday, though the focus remains on the crucial Nonfarm Payrolls (NFP) on Friday.

Technical Analysis: USD/JPY bears have the upper hand below 200-day SMA

From a technical perspective, a move beyond the 142.00 round figure might have set the stage for further gains, albeit bearish oscillators on the daily chart warrant caution for bullish traders. Hence, any subsequent move up is more likely to attract fresh sellers near the 142.40 region and remain capped near the very important 200-day Simple Moving Average (SMA) support breakpoint, currently around the 143.00 mark.

On the flip side, the 141.55 zone now seems to protect the immediate downside, below which the USD/JPY pair could slide back to the 141.00 round figure. Some follow-through selling will expose the multi-month low, around the 140.25 area touched last week, and the 140.00 psychological mark. The latter should act as a key pivotal point, which if broken decisively will be seen as a fresh trigger for bearish traders. Spot prices might then accelerate the fall towards the 139.35 region en route to the 139.00 mark, the 138.75 area and the 138.00 mark (July 28 low).