Japanese Yen flat-lines around 100-day SMA against USD as Fed decision looms large

Share:

• The Japanese Yen remains confined in a range and is influenced by a combination of factors.
• Softer domestic data undermines the JPY amid a modest pickup in demand for the US Dollar.
• Geopolitical risks, China’s economic woes and the BoJ’s hawkish tilt lend support to the JPY.

The Japanese Yen (JPY) seesaws between tepid gains/minor losses against its American counterpart through the first half of the European session on Wednesday and remains confined in a familiar range held over the past two weeks or so. Traders opt to wait on the sidelines amid the uncertainty over the timing of when the Federal Reserve (Fed) will start cutting interest rates. Hence, the focus will remain glued to the highly-anticipated FOMC policy decision, due later today, which will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide a fresh directional impetus to the USD/JPY pair. 

Heading into the key central bank event risk, softer Japanese macro data  Retail Sales and Industrial Production – released this Wednesday turn out to be a key factor undermining the JPY. Apart from this, the emergence of some US Dollar (USD) buying, supported by diminishing odds for a more aggressive Fed policy easing in 2024, acts as a tailwind for the USD/JPY pair. The supporting factor, however, is offset by the Bank of Japan’s (BoJ) hawkish tilt, persistent worries about a further escalation of geopolitical tensions in the Middle East and China’s economic woes, which lends some support to the safe-haven JPY.

Daily Digest Market Movers: Japanese Yen struggles to gain any meaningful traction amid mixed fundamental cues

• The Japanese Yen loses traction after softer Japanese Retail Sales and Industrial Production figures for December, though the Bank of Japan’s hawkish tilt should help limit losses.
• Government data showed that Japanese Retail Sales grew by 2.1% in December, marking the 22nd straight month of increase, though fell short of consensus estimates for a 5.1% rise.
• Japan’s factory output rebounded in December and increased by 1.8% from November, representing the biggest gain since June, though it fell short of expectations for a 2.4% growth.
• Japanese government officials said that the January production forecast is expected to decline due to a partial auto plant suspension and that the Noto earthquake had a limited impact on output planning.
• According to a report published by the Japanese Cabinet Office, Consumer Confidence Index rose to 38.0 in January, up 0.8 points as compared to the previous month’s reading of 37.2.
• The Bank of Japan’s Summary of Opinions report from the January 2024 monetary policy meeting suggested that the central bank must patiently maintain monetary easing under YCC.
• BoJ board members continued to discuss prospects for ending the negative rate policy at the January meeting, with some indicating conditions that would allow that move are increasing.
• The director of the International Monetary Fund (IMF) Asia and Pacific Department said that FX intervention could lower excess volatility and better align exchange rate moves with fundamentals. 
• The risk of a further escalation of military action in the Middle East benefits the safe-haven Japanese Yen and should keep a lid on any meaningful appreciating move for the USD/JPY pair.
• Iran’s envoy to the UN, as reported by the Islamic Republic News Agency (IRNA), said that any attack on Iran, its interests or nationals outside its borders will be met with definitive response.
• The US Dollar gains some positive traction as invstors continue scaling back their expectations for an early rate cut by the Federal Reserve in the wake of a still resilient US economy.
• The Job Openings and Labor Turnover Survey (JOLTS) report published by the Bureau of Labor Statistics on Tuesday showed that US job openings unexpectedly increased in December.
• The number of job openings on the last business day of December stood at 9.02 million, suggesting that the labor market is too strong for the Fed to start cutting interest rates in the first quarter.
• The markets have lowered the odds of a rate cut in March to well below 50% as investors now look to the highly-anticipated FOMC policy decision cues about the timing of first rate cut.
• Wednesday’s release of the US ADP report on private-sector employment and Chicago PMI might provide some impetus, though the immediate market reaction is likely to be short-lived.

Technical Analysis: USD/JPY awaits a breakout through a short-term range before the next leg of a directional move

From a technical perspective, the USD/JPY pair has been oscillating in a familiar range around the 100-day Simple Moving Average (SMA) over the past two weeks or so. This points to indecision among traders over the next leg of a directional move and warrants some caution. In the meantime, the 147.00 mark could protect the immediate downside and any subsequent slide is likely to find decent support near last week’s swing low, around the 146.65 region. Some follow-through selling, however, will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.

On the flip side, any subsequent move up is more likely to confront stiff resistance around the 148.00 mark and and remain capped near the 148.30-148.35 zone. The next relevant hurdle is pegged near the monthly peak, around the 148.80 region. Given that oscillators on the daily chart are holding comfortably in the positive territory, a sustained strength beyond the latter will be seen as a fresh trigger for bullish traders. The USD/JPY pair might then surpass the 149.00 mark and climb to the 149.30-149.35 intermediate hurdle before aiming towards reclaiming the 150.00 psychological mark.