Japanese Yen trades just below its highest level since early February as traders look to US CPI

• The Japanese Yen continues to be underpinned by bets for an early interest rate hike by the BoJ.
• Comments by Japan's Finance Minister suggest that now is not the time for the BoJ to tighten.
• Traders also seem reluctant to place aggressive bets ahead of the US consumer inflation figures.

The Japanese Yen (JPY) remains on the front foot against its American counterpart during the Asian session on Tuesday and flirts with its highest level since early February touched last week. Against the backdrop of a rise in Tokyo CPI last week and an upward revision of the fourth quarter GDP print on Monday, data released earlier today showed that the Producer Price Index (PPI) in Japan grew more than expected in February. This comes on top of hopes that another substantial pay hike in Japan will fuel consumer spending and demand-driven inflation, reaffirming bets for an imminent shift in the Bank of Japan's (BoJ) policy stance and undermining the JPY.

In contrast, the Federal Reserve (Fed) is widely anticipated to begin cutting interest rates in June, which fails to assist the US Dollar (USD) to capitalize on its recovery from the lowest level since mid-February touched last Friday. This, in turn, is seen as another factor that might contribute to capping the upside for the USD/JPY pair. Traders, however, seem reluctant to place aggressive directional bets and prefer to wait for the release of the latest US consumer inflation figures later this Tuesday. The crucial US CPI will be looked upon for more clues about the timing and pace of rate cuts by the Fed, which will drive the USD demand and provide a fresh impetus.

Daily Digest Market Movers: Japanese Yen remains well supported by hawkish BoJ expectations

• Bets that the Bank of Japan might end the negative interest rates as early as the March 18-19 meeting continues to underpin the Japanese Yen and weigh on the USD/JPY pair.
• Inflation in Tokyo moved back above the BoJ's 2% target in February and an upward revision of the Q4 GDP print suggested that Japan's economy avoided a technical recession.
• Data released this Tuesday showed that the Producer Price Index in Japan rose 0.2% MoM in February vs. a flat reading last month and the yearly rate climbed from 0.2% to 0.6%.
• Investors also seem convinced that the annual wage negotiations will yield bumper pay hikes for the second straight year and allow the BoJ to pivot away from its ultra-dovish stance.
• Japan's Finance Minister Shunichi Suzuki said that positive developments are seen in Japan's economy, though a stage has not been reached where Japan can avoid falling back into deflation.
• BoJ Governor Kazuo Ueda will speak in the parliament again this Tuesday from 02:00 GMT and should infuse volatility around the JPY crosses, allowing traders to grab short-term opportunities.
• The US Dollar continues with its struggle to attract any meaningful buyers amid growing acceptance that the Federal Reserve will start easing its monetary policy in the coming months.
• The bets were reaffirmed by the mixed US monthly jobs report on Friday, which showed a spike in the unemployment rate to a two-year high and kept the door open for a June rate cut.
• The yield on the benchmark 10-year US government bond touched a five-week low on Monday and languishes near the 4.0% mark, which further keeps the USD bulls on the defensive.
• Traders now look to the US consumer inflation figures for cues about the likely timing and the pace of the Fed's rate-cutting cycle before placing fresh directional bets around the USD/JPY pair.
• The headline CPI is anticipated to edge higher to 0.4% in February and the yearly rate is expected to hold steady at 3.1%, while the Core CPI is seen easing to the 3.7% YoY rate from 3.9% previous.

Technical Analysis: USD/JPY bears have the upper hand, acceptance below 38.2% Fibo. awaited

From a technical perspective, the USD/JPY pair has been showing some resilience below the 38.2% Fibonacci retracement level of the December-February rally, warranting some caution for bearish traders. That said, the recent breakdown through the 100-day Simple Moving Average (SMA), the formation of a double-top pattern ahead of the 152.00 mark and bearish oscillators suggest that the path of least resistance for spot prices is to the downside.

Hence, any meaningful recovery beyond the 147.00 mark is likely to confront stiff resistance and remain capped near the 100-day SMA support breakpoint, near mid-147.00s. A sustained strength beyond, however, could lift the USD/JPY pair beyond the 148.00 mark, towards testing the next relevant hurdle near the 148.65-148.70 region. The momentum could extend further towards the 149.00 mark en route to the 149.25 horizontal support-turned-resistance.

On the flip side, bears need to wait for acceptance below the 38.2% Fibo. level before placing fresh bets. Some follow-through selling below the 200-day SMA, currently pegged near the 146.30-146.25 region, will mark a fresh breakdown and make the USD/JPY pair vulnerable. The subsequent downfall has the potential to drag spot prices below the 146.00 round-figure mark, towards the 50% Fibo. level, around the 145.60 zone.