Japanese Yen consolidates against USD as investors await BoJ policy move

• The Japanese Yen draws some support from bets for an eventual BoJ policy pivot.
• The uncertainty over the Fed’s rate-cut path keeps the USD bulls on the defensive.
• Traders also seem reluctant ahead of the BoJ and FOMC policy meetings next week.

The Japanese Yen (JPY) struggles to gain any meaningful traction during the Asian session on Thursday and remains confined in the previous day's broader trading range against its American counterpart. The outcome of Japan’s spring wage negotiations indicated that most firms have agreed to the trade unions' wage rise demands, paving the way for an imminent shift in the Bank of Japan's (BoJ) policy stance. Apart from this, persistent geopolitical tensions lend some support to the safe-haven JPY, which, along with subdued US Dollar (USD) demand, exerts some pressure on the USD/JPY pair.

Meanwhile, the BoJ Governor Kazuo Ueda offered a slightly bleaker assessment of the economy earlier this week and cooled bets for an early interest rate hike, capping gains for the JPY. The USD, on the other hand, struggle to gain any meaningful traction as investors seek more clarity about the Federal Reserve’s (Fed) rate cut path. This further contributes to the USD/JPY pair's range-bound price move as traders now look forward to next week's key central bank event risks – the highly-anticipated BoJ decision on Tuesday and the Fed policy update on Wednesday – before placing fresh directional bets.

In the meantime, Thursday's US economic docket – featuring the release of monthly Retail Sales, the Producer Price Index (PPI) and the usual Weekly Initial Jobless Claims – might provide some impetus to the USD/JPY pair. The immediate market reaction, however, is likely to be limited, warranting some caution for short-term traders.

Daily Digest Market Movers: Japanese Yen bulls seem non-committed amid BoJ/Fed uncertainty

• Japan's biggest companies responded to the Union's wage hike demand in full, clearing the way for the Bank of Japan to end its negative interest rates as early as next week and underpinning the Japanese Yen.
• Japanese media reported that more BoJ policymakers are backing the idea of a policy shift at the upcoming policy meeting as pay hikes by major companies bring the 2% price stability target within reach.
• 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 rate hike since 2007 comes in March or April policy meeting.
• That said, the BoJ Governor Kazuo Ueda said earlier this week that the central bank will seek an exit from easy policy when achievement of 2% inflation is in sight, cooling bets for an early interest rate hike.
• An Israeli attack hit a UN aid distribution centre in Rafah, while Lebanon’s Hezbollah said two of its fighters were killed in the Bekaa Valley after Israel launched attacks on the area for a second straight day.
• A report from US news site Politico says that senior US officials have told their Israeli counterparts that the Biden administration will support the targeting of high-value Hamas targets in and underneath Rafah.
• The slightly warmer US consumer inflation released on Tuesday fuelled speculations that the Federal Reserve might stick to its higher for longer narrative, though the markets are still pricing in a rate cut in June.
• This keeps the US Dollar bulls on the defensive and does little to provide any meaningful impetus to the USD/JPY pair as traders remain on the sidelines ahead of the BoJ and FOMC monetary policy meetings next week.
• In the meantime, Thursday's release of US macro data – Retail Sales, Producer Price Index (PPI) and Weekly Initial Jobless Claims – might produce short-term trading opportunities ahead of the key central bank event risks.

Technical Analysis: USD/JPY bears have the upper hand while below 100-day SMA and 148.00 mark

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. The subsequent move up, however, struggled to find acceptance above the 100-day Simple Moving Average (SMA) and faltered ahead of the 23.6% Fibo. level. Moreover, oscillators on the daily chart are still holding deep in the negative territory and are still away from being in the oversold zone, suggesting that the path of least resistance for spot prices is to the downside.

That said, any further decline is likely to find some support near the overnight low, around the 147.25-147.20 area, ahead of the 147.00 mark and the 146.80 zone (38.2% Fibo.). This is closely followed by the 146.50-146.45 region, or the monthly trough, and the 200-day SMA, currently near the 146.30 region. Some follow-through selling, leading to a subsequent break below the 146.00 mark will be seen as a fresh trigger for bearish traders and drag the USD/JPY pair to mid-145.00s (50% Fibo.) en route to the 145.00 psychological mark.