Japanese Yen hangs near YTD low against USD, not out of the woods yet

• The Japanese Yen attracts some buyers and snaps a two-day losing streak against the USD.
• A softer risk tone benefits the safe-haven JPY amid the BoJ’s hawkish tilt earlier this month.
• Hawkish Fed expectations continue to underpin the USD and could lend support to USD/JPY.

The Japanese Yen (JPY) ticks higher during the Asian session on Tuesday and recovers a part of its losses registered over the past two days, to the YTD low touched against its American counterpart the previous day. Against the backdrop of geopolitical risks and China's economic woes, bets that the Federal Reserve (Fed) might not cut interest rates as much as anticipated temper investors' appetite for riskier assets. Apart from this, the Bank of Japan's (BoJ) hawkish tilt, signalling conviction on hitting inflation goal and setting the stage to pull interest rates out of negative territory at its upcoming meetings in March or April, lends some support to the JPY. This, in turn, exerts some pressure on the USD/JPY pair, though the downside seems cushioned in the wake of a bullish US Dollar (USD).

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, stands tall near its highest level since November 14 as investors continue to scale back their expectations for aggressive Fed easing in 2024. The incoming US macro data suggests that the economy is in good shape and gives the Fed more headroom to keep rates higher for longer. Adding to this, comments by a slew of influential FOMC members, including Fed Chair Jerome Powell, reaffirmed the hawkish outlook, which remains supportive of elevated US Treasury bond yields and continues to underpin the Greenback. Furthermore, the recent widening of the US-Japan rate differential might continue to dim demand for the JPY and also contribute to limiting any meaningful corrective decline for the USD/JPY pair.

Daily Digest Market Movers: Japanese Yen attracts some haven flows on the back of BoJ’s hawkish tilt

• A combination of factors lends some support to the Japanese Yen and keeps a lid on the USD/JPY pair's two-day-old upward trajectory to its highest level since late November touched on Monday.
• The market sentiment remains fragile on the back of persistent worries about the risk of a further escalation of geopolitical tensions in the Middle East and slowing economic growth in China.
• The Bank of Japan signalled earlier this month that conditions for phasing out huge stimulus and pulling short-term interest rates out of negative territory were falling into place
• Investors continue to scale back their expectations regarding the timing and pace of interest rate cuts by the Federal Reserve in the wake of a still resilient US economy.
• Against the backdrop of Friday's blockbuster US NFP report, the Institute for Supply Management (ISM) reported on Monday that the US services sector growth picked up in January.
• The ISM Non-Manufacturing PMI increased to 53.4 last month from 50.5 in December, suggesting that growth momentum from the fourth quarter spilled over into the new year.
• The CME Group's Fedwatch tool indicates that traders have now almost entirely negated bets on a March rate cut and now see just five cuts for this year compared with six previously.
• The yield on the rate-sensitive 2-year US government bond climbed to a one-month high and the benchmark 10-year US Treasury yield holds comfortably above the 4.0% mark, underpinning the US Dollar.
• Minneapolis Fed President Neel Kashkari argued that a possibly higher neutral rate means that the central bank can take more time to assess upcoming data before beginning interest rate cuts.
• Chicago Fed President Austan Goolsbee noted that the economy has been strong and that there have been seven months of good inflation reports, though did not comment on the timing of the first rate cut.
• A slew of influential FOMC members are scheduled to speak again on Tuesday, which will play a key role in driving the USD demand and provide some meaningful impetus to the USD/JPY pair.

Technical Analysis: USD/JPY struggles to make it through the 148.75-148.80 multiple-tops resistance

From a technical perspective, bulls need to wait for a sustained breakout through the 148.75-148.80 multiple-tops resistance before placing fresh bets. Given that oscillators on the daily chart are holding comfortably in the positive territory and still far from being in the overbought zone, some follow-through buying beyond the 149.00 round figure will set the stage for additional gains. The USD/JPY pair might then aim back to reclaim the 150.00 psychological mark with some intermediate resistance near the 149.60-149.70 region.

On the flip side, the 148.00 mark now seems to protect the immediate downside. Any further decline is more likely to attract fresh buyers and remain limited near the 100-day Simple Moving Average (SMA), currently pegged near the 147.60-147.55 zone. A convincing break below the latter, however, might prompt aggressive technical selling and drag the USD/JPY pair below the 147.00 mark, towards the next relevant support near the 146.75-146.70 region. The downfall could extend further towards the 146.40 zone en route to sub-146.00 levels, or last week's swing low.