Japanese Yen flirts with weekly low against USD, seems vulnerable to slide further

• The Japanese Yen weakens following the release of weaker domestic wage growth data.
• A positive risk tone further undermines the JPY and lifts USD/JPY closer to the weekly top.
• Elevated US bond yields lend support to the USD and support prospects for further gains.

The Japanese Yen (JPY) drifts lower for the second successive day against its American counterpart and lifts the USD/JPY pair to the 144.80 region, closer to the weekly top during the Asian session on Wednesday. The Labour Ministry reported earlier today that real wages in Japan shrank for the 20th month in November. This comes after Tokyo's consumer inflation, a leading indicator of nationwide price trends, showed a further slowdown on Tuesday. Adding to this, government stimulus measures in the wake of a devastating New Year's Day earthquake should delay the Bank of Japan's (BoJ) plan to pivot away from its ultra-dovish stance. This, along with a generally positive tone around the equity markets, is seen undermining the safe-haven JPY.

The US Dollar (USD), on the other hand, remains below a nearly three-weekly peak touched last Friday amid the uncertainty over the timing of when the Federal Reserve (Fed) will start cutting interest rates. The markets, however, have been scaling back their expectations about more aggressive policy easing by the US central bank, especially after Friday's upbeat US jobs report pointed to a still-resilient labor market. This remains supportive of elevated US Treasury bond yields, which should continue to act as a tailwind for the Greenback and suggests that the path of least resistance for the USD/JPY pair is to the upside. That said, bulls might prefer to wait for the release of the US consumer inflation figures on Thursday before placing fresh bets.

Daily Digest Market Movers: Japanese Yen continues to be weighed down by weaker domestic data

• The Japanese Yen continues losing ground after Japan's Labour Ministry reported this Wednesday that inflation-adjusted real wages fell by 3.0% in November from a year earlier.
• Furthermore, Japanese workers' nominal pay grew by a modest 0.2% in November – marking the slowest in nearly two years – as compared to a 1.5% rise in the previous month.
• This comes on top of Tuesday's data, which showed that Tokyo's core Consumer Price Index (CPI) decelerated to the 2.1% YoY rate in December and matched a low hit in June 2022.
• This further dampens hopes for a hawkish pivot by the Bank of Japan, which regards wage trends and inflation outlooks as key factors in considering the dismantling of its negative rate policy.
• The Asahi newspaper reported that Japan's government is considering doubling budget reserves to 1 trillion Yen for the new fiscal year starting in April to cover the cost of earthquake reconstruction.
• Japanese Prime Minister Fumio Kishida's cabinet earlier on Tuesday approved 4.74 billion Yen spending from fiscal 2023/24 reserves for such aid as water, food, diapers and heaters.
• The yield on the benchmark 10-year US government bond holds steady above the 4.0% threshold amid reduced bets for an early interest rate cut and lends support to the US Dollar.
• The fundamental backdrop supports prospects for a further appreciating move for the USD/JPY pair, though bulls might wait for the US consumer inflation figures on Thursday.

Technical Analysis: USD/JPY bulls might now aim to retest multi-week high, around the 146.00 mark

From a technical perspective, the overnight bounce from the vicinity of the very important 200-day Simple Moving Average (SMA) and a subsequent move up validates the positive outlook. Some follow-through buying beyond the 145.00 psychological mark will reaffirm the positive outlook and pave the way for additional gains. The USD/JPY pair might then climb to the 146.00 neighbourhood, or a multi-week high touched last Friday, with some intermediate hurdle near the mid-145.00s.

On the flip side, the 144.50 area now seems to protect the immediate downside ahead of the Asian session low, around the 144.30 zone. The next relevant support is pegged near the 144.00 mark, below which the USD/JPY pair could slide back to challenge the 200-day SMA, currently around the 143.35 region. A convincing break below the latter will suggest that the recent goodish recovery from a multi-month low has run out of steam and prompt aggressive technical selling.