Japanese Yen strengthens further against USD amid divergent BoJ-Fed policy expectations

• The Japanese Yen continues to draw support from hawkish BoJ expectations.
• A softer risk tone further seems to benefit the JPY’s relative safe-haven status.
• Fed rate cut bets drag the USD closer to the monthly low and weigh on USD/JPY.

The Japanese Yen (JPY) strengthens against the US Dollar (USD) for the third successive day on Tuesday and is supported by the increasing likelihood of a policy shift by the Bank of Japan (BoJ). The incoming inflation data from Japan suggests that the economy is making progress towards achieving sustained rises in inflation, which should allow the BoJ to consider normalising its ultra-loose monetary policy.

This, along with a generally weaker tone around the equity markets, continues to underpin the safe-haven JPY. Apart from this, the prevalent USD selling bias, fuelled by increased chances of earlier rate cuts by the Federal Reserve (Fed) in 2024, drags the USD/JPY pair to the 148.00 neighbourhood, or a four-day low during the Asian session and ahead of speeches by a slew of FOMC members later today.

Daily Digest Market Movers: Japanese Yen remains supported by stronger domestic inflation data

Government data showed on Friday that the nationwide headline and core CPI remained above the Bank of Japan's 2% target for the 19th consecutive month in October.
Furthermore, a surge in Japan's wholesale services inflation, driven by a tight job market, fuels speculations that the BoJ will end its negative interest rate policy in 2024.
The services Producer Price Index (PPI) released on Monday accelerated to 2.3% in October from a year earlier from a revised 2.0% rise in the previous month.
Japan's big employers are set to follow this year's bumper pay hikes in 2024, giving the Japanese central bank additional room to finally roll back massive monetary stimulus.
The US Dollar drops back closer to the monthly low amid growing acceptance that the Federal Reserve is done raising rates and may begin easing policy as early as March 2024.
A softer risk tone benefits the JPY's safe-haven status and contributes to the offered tone surrounding the USD/JPY pair for the third successive day on Tuesday.
Investors now look forward to the release of the BoJ Core CPI report for short-term impetus.
The BoJ's preferred inflation gauge, which has been steadily rising from a 2023 low of 2.7% in February, is expected to hold steady at the 3.4% YoY rate in October.
Amid speeches by a slew of influential FOMC members, the Conference Board's US Consumer Confidence Index might also contribute to producing short-term trading opportunities later during the North American session.

Technical Analysis: USD/JPY bears could target 100-day SMA support, just below the 147.00 mark

From a technical perspective, a sustained break and acceptance below the 148.00 round figure will expose the 100-day Simple Moving Average (SMA), currently near the 147.90-147.85 zone, which if broken decisively will be seen as a fresh trigger for bearish traders and pave the way for deeper losses towards the monthly low, around the 147.15 area.. The USD/JPY pair might then accelerate the fall towards the 146.00 mark en route to the next relevant support near the 145.50 zone.

On the flip side, immediate resistance is pegged near the 148.80 region ahead of the 149.00 mark and the weekly peak, around the 149.65 region touched on Monday. A sustained strength beyond could lift the USD/JPY pair beyond the 150.00 psychological mark, towards the 150.35 resistance zone. Some follow-through buying will negate any near-term negative bias and allow bulls to reclaim the 151.00 round-figure mark.