Japanese Yen drops to over one-month low against USD amid divergent BoJ-Fed expectations

• The Japanese Yen drifts lower for the third successive day amid dovish BoJ expectations.
• Reduced bets for an early Fed rate cut lend support to the USD and the USD/JPY pair.
• Traders now look forward to the US Retail Sales data and Fedspeak for a fresh impetus.

The Japanese Yen (JPY) extends its weakening trend for the third straight day on Wednesday and drops to its lowest level since December 6 against its American counterpart during the Asian session. The Bank of Japan (BoJ) is anticipated to delay the plan to pivot away from its ultra-dovish stance in the wake of a devastating earthquake in central Japan, falling rates of inflation in Tokyo and weak wage data. This, in turn, is seen as a key factor undermining the JPY, which, along with a bullish US Dollar (USD), lifts the USD/JPY pair to 100-day Simple Moving Average (SMA) support breakpoint, now turned resistance, near the 147.45 region.

The overnight hawkish remarks by Federal Reserve (Fed) Governor Christopher Waller forced investors to further scale back their expectations for an interest rate cut in March. This remains supportive of elevated US Treasury bond yields and acts as a tailwind for the Greenback. Meanwhile, receding bets for an early policy easing by the Fed, along with geopolitical tensions and China's economic woes, continue to weigh on investors' sentiment, though fails to lend any support to the safe-haven JPY. This suggests that the path of least resistance for the USD/JPY pair is to the upside and supports prospects for an extension of the monthly uptrend.

Traders now look forward to the US economic docket, highlighting the release of monthly Retail Sales figures, for some impetus later during the early North American session this Wednesday. Apart from this, scheduled speeches by FOMC members, along with the US bond yields, will influence the USD price dynamics and contribute to producing short-term trading opportunities around the USD/JPY pair. The focus, however, will be on Japan's National Core CPI on Friday, which will drive the JPY ahead of the BoJ decision next Tuesday.

Daily Digest Market Movers: Japanese Yen is undermined by fading hopes for a shift in BoJ’s policy stance

• The Japanese Yen continues to be weighed down by the fact that the chances for the Bank of Japan to end its negative rate policy have faded in the wake of domestic factors.
• Against the backdrop of the New Year's Day earthquake in Japan, falling rates of inflation in Tokyo and weaker wage data ensure that BoJ will maintain the status quo.
• The JPY fail to gain any respite from a generally weaker tone around the equity markets and persistent geopolitical tensions stemming from the Israel-Hamas war.
• In the latest development, the US carried out another airstrike targeting a Houthi missile facility in Yemen, noting a threat to merchant vessels and US Navy ships.
• The US Dollar remains well supported by reduced bets for a March interest rate cut by the Federal Reserve and provides an additional boost to the USD/JPY pair.
• Fed Governor Christopher Waller said on Tuesday that the recent data allows the central bank to consider policy rate cuts, but only if inflation continues to moderate.
• Waller added that the Fed needs to be cautious and cannot rush into rate cuts as the economy remains in good shape, pushing the US Treasury bond yields sharply higher.
• The yield on the benchmark 10-year US government bond holds steady above the 4.0% threshold and is seen as another factor acting as a tailwind for the Greenback.
• The US macro data due later this Wednesday is expected to show that monthly Retail Sales grew by 0.4% in December, while Industrial Production remained flat.
• Fed Governors Michael Barr and Michelle Bowman's scheduled speeches during the North American session might further contribute to influencing the USD.

Technical Analysis: USD/JPY bulls await a breakout through the 100-day SMA/61.8% Fibo. confluence hurdle

From a technical perspective, the USD/JPY pair pauses near the 147.45-147.50 confluence, comprising the 100-day SMA and the 61.8% Fibonacci retracement level of the November-December downfall. A sustained strength beyond the said barrier will be seen as a fresh trigger for bullish traders and validate the near-term constructive outlook. Given that oscillators on the daily chart are holding in the positive territory, spot prices might then aim to surpass the 148.00 round figure and test the 148.50 hurdle (November 30 peak). The momentum could extend further towards the 148.80-148.85 region en route to the 149.00 mark and the 149.70-149.75 supply zone and the 150.00 psychological mark.

On the flip side, any corrective decline back below the 147.00 mark is likely to attract fresh buyers near the 146.65 horizontal zone. This should help limit the downside for the USD/JPY pair near the 146.10-146.00 region. The latter should act as a key pivotal point, which if broken decisively will negate the positive bias and prompt aggressive technical selling. The USD/JPY pair could then slide to the 145.45-145.40 intermediate support before dropping to sub-145.00 levels en route to the 144.60 support, the 144.00 mark and the 200-day SMA, currently around the 143.75-143.70 region.