Japanese Yen strengthens against USD amid reviving March BoJ rate hike bets

• The Japanese Yen attracts fresh buyers following the overnight fall to the weekly low.
• Reports that the BoJ is considering a March rate hike provide a modest boost to the JPY.
• The USD fades the warmer US CPI-led spike and does little to lend support to USD/JPY.

The Japanese Yen (JPY) edges higher against its American counterpart during the Asian session on Wednesday and moves away from the weekly low touched the previous day. A Bloomberg report, citing people familiar with the matter, indicates that the Bank of Japan (BoJ) is considering a March hike, though the outcome is too close to call and the final decision will be made after officials see the initial tally from spring wage talks. This, in turn, is seen as a key factor underpinning the JPY and exerting some downward pressure on the USD/JPY pair amid a modest US Dollar (USD) downtick.

That said, the overnight dovish remarks by BoJ Governor Kazuo Ueda might have cooled bets for an immediate rate hike. Apart from this, a generally positive risk tone might hold back traders from placing aggressive bullish bets around the safe-haven JPY. Furthermore, stronger-than-expected US consumer inflation data released on Tuesday suggested that the Federal Reserve (Fed) could potentially delay any monetary easing. This led to the overnight goodish rebound in the US Treasury bond yields, which should act as a tailwind for the Greenback and limit losses for the USD/JPY pair.

Daily Digest Market Movers: Japanese Yen regains positive traction amid renewed BoJ rate hike talks

• Expectations that Japan's biggest companies will offer sizeable pay increases and clear the way for the Bank of Japan to end its negative interest rates as early as next week lend some support to the Japanese Yen.
• In fact, Japan’s largest umbrella group for unions, Rengo, said that its affiliated members demanded an average wage increase of 5.85% this year, which, in turn, would mark the biggest increase in around 31 years.
• In the latest development, Toyota responds to Union wage hike demand in full, while Okuma Corp hikes wages by ¥15,960 vs. union demand of ¥18,215, raising the question if the hikes are enough to justify BoJ tightening.
• According to people familiar with the matter, the assessment of BoJ officials is that the central bank is close to liftoff, regardless of whether the first interest rate hike since 2007 comes in March or April policy meeting.
• BoJ Governor Kazuo Ueda said on Tuesday that the central bank will seek an exit from easy policy when achievement of 2% inflation is in sight, smashing hopes for an imminent shift in the policy stance next week.
• Data released from the US showed that the headline Consumer Price Index (CPI) rose 0.4% in February, while the yearly rate came in at 3.2% as compared to January's final print and market expectations of 3.1%.
• Annual Core CPI, which excludes volatile food and energy prices, increased 3.8% during the reported month, slightly below the January rise of 3.9% but was above consensus estimates for a reading of 3.7%.
• The slightly warmer US consumer inflation figures boosted the US Treasury bond yields, which should act as a tailwind for the US Dollar and help limit any meaningful depreciating move for the USD/JPY pair.

Technical Analysis: USD/JPY seems vulnerable to slide further while below 100-day SMA, 148.00 mark

From a technical perspective, spot prices struggled to find acceptance above the 100-day Simple Moving Average (SMA) and the 148.00 round-figure mark on Tuesday. The subsequent decline, along with the formation of a bearish double-top pattern in the vicinity of the 152.00 mark, or the YTD peak touched in February, suggests that the recent bearish trend might still be far from being over. Moreover, oscillators on the daily chart are holding deep in the negative territory and suggest that the path of least resistance for the USD/JPY pair is to the downside.

Any further downfall, however, is likely to find some support near the 147.00 mark ahead of the 146.80 region, representing the 38.2% Fibonacci retracement level of the December-February rally. Some follow-through selling will expose the very important 200-day SMA, currently pegged near the 146.25 region, which if broken decisively will be seen as a fresh trigger for bearish traders. The USD/JPY pair might then weaken further below the 146.00 round figure and accelerate the slide towards the 50% Fibo. level, around the 145.55-145.50 zone.