Japanese Yen hangs near multi-week low against USD after domestic inflation data

• The Japanese Yen languishes near its lowest level since November 28 against the USD.
• Japanese consumer inflation eases as expected and reaffirms bets for a BoJ status quo.
• A positive risk tone also undermines the safe-haven JPY and lends support to USD/JPY.
• Reduced bets for a March Fed rate cut and rising US bond yields favour the USD bulls.

The Japanese Yen (JPY) oscillates in a narrow trading band against its American counterpart during the Asian session on Friday and reacts little to domestic consumer inflation figures, which eased as expected in December. Against the backdrop of sluggish wage growth data released last week, the crucial Japan Consumer Price Index (CPI) reaffirmed market expectations that the Bank of Japan (BoJ) will stick to the ultra-dovish stance at its upcoming monetary policy meeting next week. This, along with a stable performance around the equity markets, could undermine the JPY's safe-haven status and allow the USD/JPY pair to prolong its upward trajectory witnessed over the past three weeks or so.

Meanwhile, the US Dollar (USD) stands tall near a more than one-month top and remains on track to post gains for the second week in a row amid reduced bets for an early interest rate cut by the Federal Reserve (Fed). Data released on Thursday showed that the US Initial Jobless Claims dropped to the lowest level in nearly one-and-half years and pointed to the underlying strength in the labor market. This comes on top of stronger US Retail Sales on Wednesday, which suggested that the economy is in good shape and gives the Fed headroom to keep rates higher for longer. This continues to push the US Treasury bond yields higher and acts as a tailwind for the buck, validating the positive outlook for the USD/JPY pair.

Daily Digest Market Movers: Japanese Yen remains depressed amid dovish BoJ expectations

• The Japanese Yen remains within the striking distance of a nearly two-month low against the US Dollar following the release of domestic consumer inflation figures.
• The Statistics Bureau reported that the headline Consumer Price Index (CPI) eased from the 2.8% YoY rate to 2.6% in December – hitting the lowest level since June 2022.
• Japan’s core inflation rate, which strips out prices of volatile fresh food prices, decelerated further from 2.5% in November, to 2.3%, or its lowest level since July 2022,
• This comes on top of the New Year's Day earthquake in Japan and weak wage growth data, ensuring that the Bank of Japan will not pivot away from its ultra-dovish stance.
• Investors further pared bets for an early rate cut by the Federal Reserve after data on Thursday showed that Jobless Claims fell to the lowest level since September 2022.
• The strong labour-market report, along with upbeat US Retail Sales figures on Wednesday, indicated a still-resilient economy and dented expectations for a Fed cut in March.
• According to the CME group's FedWatch Tool, the markets are currently pricing in a 57% chance of an interest rate cut at the March FOMC meeting, down from 75% a week ago.
• In the latest geopolitical developments, Iranian-backed Houthi terrorists in Yemen launched two anti-ship ballistic missiles at a US-owned, Greek-operated tanker ship on Thursday.
• The risk of a further escalation of military action in the Middle East could benefit the JPY's safe-haven status and keep a lid on any meaningful upside for the USD/JPY pair.
• Traders now look to the US macro data – the Preliminary Michigan Consumer Sentiment and Inflation Expectations, along with Existing Home Sales – for a fresh impetus.
• The market attention, meanwhile, will remain glued to the upcoming BoJ monetary policy meeting, which will play a key role in influencing the near-term JPY price dynamics.

Technical Analysis: USD/JPY seems poised to appreciate further, bulls await a move beyond 148.50

From a technical perspective, the range-bound price action witnessed over the past two days might still be categorized as a bullish consolidation phase on the back of over a 750 pips rally from the monthly swing low. Furthermore, the recent breakout through the 147.50 confluence – comprising the 100-day Simple Moving Average (SMA) and the 61.8% Fibonacci retracement level of the November-December downfall – favours bullish traders. This, along with the fact that oscillators on the daily chart are holding comfortably in the positive territory and are still far from being in the overbought zone, suggests that the path of least resistance for the USD/JPY pair is to the upside.

That said, it will still be prudent to wait for some follow-through buying beyond the 148.50-148.55 region, or a multi-week top set on Wednesday, before positioning for any further gains. Spot prices might then accelerate the positive move towards the 149.00 round figure. The upward trajectory could extend further towards the 149.70-149.75 region before the USD/JPY pair eventually aims to conquer the 150.00 psychological mark.

On the flip side, corrective declines towards the 147.50 confluence resistance breakpoint might still be seen as a buying opportunity and remain limited. That said, a convincing break below might prompt some technical selling and drag spot prices further towards the 147.00 round figure. The latter should act as a pivotal point for the USD/JPY pair, which if broken could pave the way for a further decline towards the next relevant support near the 146.60-146.50 region.