USD/JPY steadily climbs to 150.75-80 area, fresh daily high after weaker Japanese GDP

• USD/JPY attracts fresh buyers on Wednesday and draws support from a combination of factors.
• The worse-than-expected Japanese GDP print and a positive risk tone seem to undermine the JPY.
• The USD reverses a part of Tuesday’s US CPI-inspired slump and acts as a tailwind for the major.

The USD/JPY pair regains positive traction during the Asian session on Wednesday and reverses a part of the previous day’s heavy losses to the 150.15 area, or a one-week low. The intraday buying picks up pace following the worse-than-expected release of the Japanese GDP print and lifts spot prices to a fresh daily peak, around the 150.75-150.80 region in the last hour.

According to the preliminary estimates, Japan’s economy slowed significantly and shrank at an annualized pace of 2.1% in the July-September period – marking the first contraction in three quarters. This comes on top of a more dovish stance adopted by the Bank of Japan (BoJ) and undermines the Japanese Yen (JPY). Apart from this, the risk-on mood is seen as another factor weighing on the safe-haven JPY, which, along with a modest US Dollar (USD) uptick, acts as a tailwind for the USD/JPY pair.

The upside, however, seems limited in the wake of expectations that the Federal Reserve (Fed) is done raising rates. The US Bureau of Labor Statistics (BLS) reported on Tuesday that the headline US CPI was unchanged in October and the yearly rate decelerated from 3.7% in September to 3.2% – the smallest rise in two years. This combined with other US macro data released this month, showing jobs and wage growth cooling in October, reaffirms bets that the Fed has ended its policy tightening cycle.

Market participants now expect the Fed to keep rates on hold and start cutting rates in May 2024. This led to the overnight sharp decline in the US Treasury bond yields, which might hold back the USD bulls from placing aggressive bets and keep a lid on any meaningful appreciating move for the USD/JPY pair. Traders now look to the US economic docket, featuring the release of the Producer Price Index (PPI), monthly Retail Sales figurs and the Empire State Manufacturing Index, for a fresh imptus.

Technical levels to watch