Japanese Yen traders seem non-committed ahead of this week's critical FOMC policy meeting

• The Japanese Yen is undermined by the weaker Tokyo Core CPI released on Friday.
• The USD holds steady just below the monthly peak and lends support to USD/JPY.
• Traders, however, seem reluctant amid the uncertainty over the Fed’s rate cut path.

The Japanese Yen (JPY) remains on the defensive against its American counterpart at the start of a new week and languishes near a two-month low touched on January 19. Data released on Friday showed that inflation in Tokyo – Japan's capital city – fell below the Bank of Japan's (BoJ) 2% target for the first time in nearly two years and continues to undermine the domestic currency. This, along with the underlying bullish tone surrounding the US Dollar (USD), assists the USD/JPY pair to hold above the 148.00 mark during the Asian session.

Meanwhile, the BoJ last week signalled that it was becoming more convinced to durably achieve the 2% inflation target and lifted bets that a rate hike could happen within months. Apart from this, the prevalent cautious mood around the equity markets should help limit losses for the safe-haven JPY. Furthermore, the USD bulls might refrain from placing aggressive bets and prefer to wait for the FOMC policy decision on Wednesday amid the uncertainty over the timing of the first rate cut. This, in turn, might cap any meaningful upside for the USD/JPY pair.

Daily Digest Market Movers: Japanese Yen struggles to gain traction amid mixed fundamental cues

• A further decline in the Tokyo CPI raised doubts that the Bank of Japan will phase out negative interest rates anytime soon and is seen undermining the Japanese Yen.
• The US Dollar stands tall near its highest level since December 13 touched last week and turns out to be another factor acting as a tailwind for the USD/JPY pair.
• Traders, however, seem reluctant and might prefer to move to the sidelines ahead of the crucial two-day FOMC monetary policy meeting starting on Tuesday.
• Data released on Friday showed that inflation rose modestly in December and reaffirmed expectations that the Federal Reserve will cut rates by the middle of 2024.
• The US Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index held steady at 2.6% on a yearly basis in December.
• The annual Core PCE Price Index, the Fed's preferred gauge of inflation, decelerated more than expected, to 2.9% from 3.2% in November.
• Other details showed that Personal Spending rose 0.7% in December while Personal Income grew 0.3%, pointing to strong demand from US consumers.
• This comes on the back of the upbeat US Q4 GDP print and suggests that the economy is still running hot despite tightening financial conditions.
• Growing disinflationary pressures and progress towards the Fed's 2% target take further tightening off the table, keeping the USD bulls on the defensive.
• The current market pricing indicates an even chance of easing at the March FOMC meeting and a roughly 90% probability of an interest rate cut in May.
• Investors this week will also confront the release of important US macro data scheduled at the start of a new month, including the Nonfarm Payrolls (NFP) on Friday.

Technical Analysis: USD/JPY bulls need to make it through the 148.80 hurdle to seize control

From a technical perspective, last week's failure to find bearish acceptance below the 100-day Simple Moving Average (SMA) and the subsequent move-up support prospects for additional gains. Moreover, oscillators on the daily chart are holding comfortably in the positive territory and are still far from being in the overbought zone, validating the bullish outlook for the USD/JPY pair. Bulls, however, might wait for some follow-through buying beyond the multi-week top, around the 148.80 region, before positioning for a further near-term appreciating move towards the 149.30-149.35 intermediate hurdle en route to the 150.00 psychological mark.

On the flip side, the 100-day SMA, around the 147.55 region, is likely to act to protect the immediate downside. Any further slide is likely to attract some buyers near the 147.00 round figure, which should help limit the downside for the USD/JPY pair near the 146.45 area or last week's swing low. A convincing break below the latter might shift the near-term bias in favour of bearish traders and drag spot prices to the 146.10-146.00 horizontal support. The downward trajectory could extend further towards the 145.30-145.25 area before the pair eventually drops to the 145.00 psychological mark.