Japanese Yen recovers from weekly low amid some repositioning ahead of US CPI

• The Japanese Yen gains positive traction on Thursday and snaps a two-day losing streak.
• The Fed rate-cut uncertainty keeps the USD bulls on the defensive and benefits the JPY.
• Traders might refrain from placing fresh directional bets ahead of the key US CPI report.

The Japanese Yen (JPY) edges higher during the Asian session on Thursday and recovers a part of the previous day's heavy losses back closer to the monthly low against the US Dollar (USD). The uptick lacked any obvious fundamental catalyst and could be attributed to some repositioning trade ahead of the latest consumer inflation figures from the United States (USD), due later today. The crucial US Consumer Price Index (CPI) report could determine the Federal Reserve's (Fed) monetary policy path, which, in turn, will drive the USD demand and provide a fresh directional impetus to the USD/JPY pair.

Heading into the key data risk, the uncertainty over the likely speed and magnitude of the interest rate cuts by the Fed holds back traders from placing aggressive USD directional bets. Meanwhile, the recent devastating earthquake in central Japan, falling rates of inflation in Tokyo – Japan’s capital city – and weak wage data might have already delayed the Bank of Japan's (BoJ) plan to pivot away from its ultra-dovish monetary policy settings. This, along with the upbeat market mood, should contribute to capping any further gains for the safe-haven JPY and limiting the downside for the USD/JPY pair.

Daily Digest Market Movers: Japanese Yen might struggle to build on intraday gains amid dovish BoJ expectations

• The Japanese Yen attracts some buyers on Thursday as traders opt to lighten their bearish bets and prefer to wait for the release of the latest US consumer inflation figures later during the North American session.
• The headline US CPI is expected to rise by 0.2% in December, lifting the yearly rate to 3.2% from 3.1%, while the core gauge (excluding food and energy prices) is anticipated to ease to 3.8% YoY from 4.0% previous.
• The crucial inflation data will play a key role in influencing the Fed's future policy decisions amid the uncertainty over the timing of the first interest rate cut and drive the US Dollar demand in the near term.
• Japan's Labour Ministry reported on Wednesday that inflation-adjusted real wages fell by 3.0% in November from a year earlier and nominal pay grew by 0.2% in November – the slowest in nearly two years.
• Data released on Tuesday showed that Tokyo's core CPI decelerated to the 2.1% YoY rate in December and matched a low hit in June 2022, dampening hopes for a hawkish pivot by the Bank of Japan.
• The BoJ regards wage trends and inflation outlooks as key factors in considering the dismantling of its negative rate policy.
• A generally positive tone around the equity markets could further undermine the JPY's relative safe-haven status and help limit any meaningful downside for the USD/JPY pair ahead of the key US data risk.

Technical Analysis: USD/JPY bulls need to wait for a sustained move beyond 146.00 before placing fresh bets

From a technical perspective, the recent repeated failures ahead of the 146.00 mark make it prudent to wait for a sustained strength beyond the said handle before positioning for any further gains. Given that oscillators on the daily chart have just started gaining positive traction, the USD/JPY pair might then climb to the 146.55-146.60 hurdle. The momentum could extend further towards the 147.00 mark, above which bulls might aim to challenge the 100-day Simple Moving Average (SMA), currently around the 147.45-147.50 region.

On the flip side, any further decline might now attract fresh buyers and remain limited near the 145.00 psychological mark. That said, a convincing break below will expose the next relevant support near the 144.65 horizontal zone. This is followed by the 144.20 area and the 144.00 round-figure mark, below which the USD/JPY pair could slide to the 200-day SMA, currently near the 143.45-143.40 region. Some follow-through selling will shift the near-term bias back in favour of bearish traders and drag spot prices below the 143.00 mark, towards the 142.45 support.