Japanese Yen remains on the front foot against USD, dovish BoJ expectations cap gains – Crypto News

Share:

• The Japanese Yen is seen extending the overnight recovery against the USD from a one-month low.
• Expectations that the BoJ will stick to its ultra-dovish policy stance should cap the upside for the JPY.
• Reduced bets for a more aggressive Fed easing could lend support to the buck and the USD/JPY pair.

The Japanese Yen (JPY) scales higher for the second consecutive day against its American counterpart on Friday and recovers further from a one-month low touched in the aftermath of the US consumer inflation figures. Against the backdrop of China’s economic woes, the risk of a further escalation of geopolitical tensions in the Middle East is seen as a key factor benefitting the JPY’s relative safe-haven status. Apart from this, subdued US Dollar (USD) price action exerts some downward pressure on the USD/JPY pair. 

A slightly hot headline US Consumer Price Index (CPI), along with comments by Fed officials, fueled speculations that interest rates in the US could stay higher for longer. That said, the markets are still pricing in a greater chance of an imminent shift in the Fed’s policy stance in March. This acts as a headwind for US Treasury bond yields and weighs on the USD. The downside for the USD/JPY pair, however, remains cushioned amid growing acceptance that the Bank of Japan (BoJ) will not pivot away from its ultra-dovish stance. 

The aforementioned mixed fundamental backdrop makes it prudent to wait for strong follow-through selling before placing fresh bearish bets and confirming that the USD/JPY pair’s recent goodish recovery from a multi-month low has run its course. Traders now look to the US Producer Price Index (PPI), which along with Minneapolis Fed President Neel Kashkari’s speech, might influence the USD and provide some impetus. Nevertheless, the currency pair still seems poised to end in the green for the second consecutive week. 

Daily Digest Market Movers: Japanese Yen is undermined by reviving safe-haven demand, lacks follow-through

• The Bank of Japan is expected to stick to the ultra-loose monetary policy setting at its meeting on January 22-23, which continues to undermine the Japanese Yen.
• The US consumer inflation figures released on Thursday raise doubts that the Federal Reserve will cut rates in March and lend some support to the USD/JPY pair.
• The Labor Department reported on Thursday that the headline US CPI climbed 0.3% and accelerated from 3.1% to 3.4% over the 12 months through December.
• Excluding the volatile food and energy prices, the core gauge rose by 0.3% last month and advanced 3.9% YoY in December, registering its smallest gain since May 2021.
• Cleveland Fed President Loretta Mester commented on the latest CPI figures and said that that it would likely be too soon for the US central bank to cut its interest rates at the March policy meeting.
• Adding to this, Richmond Fed chief Tom Barkin noted that the central bank needs to be convinced that inflation is headed to target and will be open to lowering rates once inflation is on track to 2%.
• Seperately, Chicago Fed Austan Goolsbee said that the central bank is still on a comfortable path forward on inflation and will have to evaluate policy restrictiveness as inflation continues to decline.
• Expectations for an imminent shift in the Fed’s policy stance drags the US Treasury bond yields lower and might hold back the USD bulls from placing aggressive bets.
• According to CNN, the US and UK forces carried out attacks against multiple Houthi targets in reaction to repeated drone and missile attacks on ships in the Red Sea.
• Traders now look to the US Producer Price Index (PPI), which, along with Minneapolis Fed President Neel Kashkari’s speech, should provide a fresh impetus.
• The headline PPI is anticipated to rise by 1.3% YoY in December from 0.9% previous, while the core PPI is seen ticking down to 1.9% from 2.0% in November.

Technical Analysis: USD/JPY shows some resilience below the 145.00 mark and the 50% Fibo. level

From a technical perspective, the USD/JPY pair is placed around the 145.00 psychological mark and flirting with the 50% Fibonacci retracement level of this week’s move-up. A sustained break and acceptance below the said handle will set the stage for an extension of the overnight corrective pullback from a one-month peak. Given that oscillators on the 1-hour chart are holding in the negative territory, some follow-through selling below the 100-hour Simple Moving Average (SMA), currently around the 144.80 region, will be seen as a fresh trigger for intraday bearish traders. Spot prices might then accelerate the downfall towards the 61.8% Fibo. level, around the 144.55 area, before dropping to the next relevant support near the 144.10-144.00 region.

On the flip side, the 145.55-145.60 horizontal zone might act as an immediate hurdle ahead of the 146.00 round figure. A sustained strength beyond the latter has the potential to lift the USD/JPY pair further towards the monthly peak, around the 146.40 area touched on Thursday. The momentum could extend further and allow bulls to aim to reclaim the 147.00 mark and then challenge the 100-day SMA, currently pegged near the 147.45 region.