Japanese Yen recovers further from one-month low, not out of the woods yet

• The Japanese Yen is seen extending the overnight recovery against the USD from a one-month low.
• Expectations that the BoJ will stick to its ultra-dovish policy stance should cap the upside for the JPY.
• Diminishing odds for an early rate cut by the Fed could lend support to the buck and the USD/JPY pair.

The Japanese Yen (JPY) strengthens for the second straight day against its American counterpart on Friday and recovers further from a one-month low touched in the aftermath of hotter US consumer inflation figures. The eagerly awaited US Consumer Price Index (CPI), along with comments by Federal Reserve (Fed) officials, forced investors to reassess the likelihood of a rate cut in March. In contrast, the Bank of Japan (BoJ) is anticipated to delay the plan to pivot away from its ultra-dovish stance in the wake of the recent devastating earthquake in central Japan, falling rates of inflation in Tokyo and weak wage data. This, in turn, might undermine the JPY and help limit any meaningful decline for the USD/JPY pair.

Meanwhile, growing market conviction that the Fed will start easing its monetary policy sooner rather than later triggers a fresh leg down in the US Treasury bond yields, which is holding back the USD bulls from placing aggressive bets. Adding to this, geopolitical risks stemming from the Israel-Hamas war, along with China's economic woes, lend some support to the safe-haven JPY and turn out to be key factors exerting pressure on the USD/JPY pair. Traders will now scrutinize the US Producer Price Index (PPI) as well as Minneapolis Fed President Neel Kashkari's speech for a fresh impetus. Nevertheless, the currency pair seems poised to register gains for the second straight week and remains at the mercy of the USD price dynamics.

Daily Digest Market Movers: Japanese Yen struggles to attract buyers amid divergent BoJ-Fed expectations

• The Bank of Japan is expected to stick to the ultra-loose monetary policy setting at its meeting on January 22-23, which continues to undermine the Japanese Yen.
• The US consumer inflation figures released on Thursday raise doubts that the Federal Reserve will cut rates in March and lend some support to the USD/JPY pair.
• The Labor Department reported on Thursday that the headline US CPI climbed 0.3% and accelerated from 3.1% to 3.4% over the 12 months through December.
• Excluding the volatile food and energy prices, the core gauge rose by 0.3% last month and advanced 3.9% YoY in December, registering its smallest gain since May 2021.
• Expectations for an imminent shift in the Fed's policy stance drags the US Treasury bond yields lower and might hold back the USD bulls from placing aggressive bets.
• According to CNN, the US and UK forces carried out attacks against multiple Houth targets in reaction to repeated drone and missile attacks on ships in the Red Sea.
• Traders now look to the US Producer Price Index (PPI), which, along with Minneapolis Fed President Neel Kashkari's speech, should provide a fresh impetus.
• The headline PPI is anticipated to rise by 1.3% YoY in December from 0.9% previous, while the core PPI is seen ticking down to 1.9% from 2.0% in November.

Technical Analysis: USD/JPY finds some support near 50% Fibo. levels, the 145.00 mark holds the key for bulls

From a technical perspective, the USD/JPY pair shows some resilience below the 145.00 psychological mark and bounces off the 50% Fibonacci retracement level of this week's move-up. Hence, it will be prudent to wait for a sustained break and acceptance below the said handle before positioning for an extension of the overnight corrective pullback from a one-month peak.

Given that oscillators on the 1-hour chart are holding in the negative territory, a break below the 100-hour Simple Moving Average (SMA), currently around the 144.80 region, will be seen as a fresh trigger for intraday bearish traders. Spot prices might then accelerate the downfall towards the 61.8% Fibo. level, around the 144.55 area, before dropping to the next relevant support near the 144.10-144.00 region.

On the flip side, the 145.55-145.60 horizontal zone might act as an immediate hurdle ahead of the 146.00 round figure. A sustained strength beyond the latter has the potential to lift the USD/JPY pair further towards the monthly peak, around the 146.40 area touched on Thursday. The momentum could extend further and allow bulls to aim to reclaim the 147.00 mark and then challenge the 100-day SMA, currently pegged near the 147.45 region.