Japanese Yen remains on the front foot against USD despite weak GDP report

• The Japanese Yen attracts some follow-through buying amid intervention fears.
• Bulls seem unaffected by data showing that Japan’s economy contracted in Q4.
• Delayed Fed rate cut bets favour the USD bulls and could lend support to USD/JPY.

The Japanese Yen (JPY) ticks higher against its American counterpart for the second successive day on Thursday, albeit lacks follow-through and remains well within the striking distance of the YTD low touched earlier this week. Japanese officials warned against rapid and speculative moves in the FX market, fueling speculations about a possible intervention to defend the domestic currency. This, in turn, is seen as a key factor lending some support to the JPY. That said, provisional government data showed that Japan’s economy unexpectedly contracted again during the fourth quarter, confirming a technical recession and raising uncertainty about the likely timing of when the Bank of Japan (BoJ) will exit the negative interest rates policy.

This, along with signs of stability in the equity markets, keeps a lid on any meaningful appreciating move for the JPY. The US Dollar (USD), on the other hand, might continue to draw support from growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer. The bets were further reaffirmed by hotter-than-expected US consumer inflation figures released on Tuesday, which comes on top of the upbeat data suggesting that the economy is in good shape. The hawkish outlook, meanwhile, favours the USD bulls and should further contribute to capping the upside for the USD/JPY pair. Traders now look to the US economic docket, highlighting monthly Retail Sales figures, for short-term opportunities.

Daily Digest Market Movers: Japanese Yen recovers further from YTD low amid intervention fears

• Japan's top currency diplomat Masato Kanda said on Wednesday that the nation would take appropriate actions on forex if needed, which is seen lending some support to the Japanese Yen.
• Provisional data released this Thursday showed that Japan's GDP contracted by 0.4% during the October-December period, missing market expectations for a 1.4% growth by a huge margin.
• This comes on top of the previous quarter's slump of 3.3%, confirming a technical recession and raising uncertainty about the Bank of Japan's plans to exit its ultra-easy policy sometime this year.
• Furthermore, the overnight rebound in the US equity markets might contribute to capping the safe-haven JPY, which, along with a bullish US Dollar, should limit losses for the USD/JPY pair.
• The US inflation data for January released on Tuesday pushed back expectations for the first interest rate cut by the Federal Reserve to the middle of the year and should underpin the USD.
• Fed funds futures have priced out a rate cut in March and see a nearly 80% chance of easing at the June meeting, and about three rate cuts of 25 basis points each by the end of this year.
• The US Retail Sales figures for January are due for release later during the North American session, with consensus estimates pointing to a 0.1% fall as compared to a flat reading last month.
• Thursday's US economic docket also features the Empire State Manufacturing Index, the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claims and Industrial Production data.

Technical Analysis: USD/JPY drifts back closer to 150.00 mark, downside potential seems limited

From a technical perspective, the USD/JPY pair could find some support near the 150.00 psychological mark. Some follow-through selling has the potential to drag spot prices further towards the 149.65-149.60 region en route to the 149.25-149.20 area and the 149.00 round figure. The latter should act as a key pivotal point, which if broken decisively might prompt some technical selling and pave the way for some meaningful corrective decline.

On the flip side, the multi-month top, around the 150.85-150.90 region, touched on Tuesday, now seems to act as an immediate hurdle. A sustained strength beyond could lift the USD/JPY pair further towards the 151.45 intermediate hurdle en route to the 152.00 neighbourhood, or a multi-decade peak set in October 2022 and retested in November 2023.