Japanese Yen snaps two-day losing streak against US Dollar ahead of the crucial US CPI

• The Japanese Yen gains some positive traction during the Asian session on Tuesday.
• USD/JPY erodes a part of its strong recovery gains registered over the past two days.
• Investors look to the US CPI for a fresh impetus ahead of the FOMC on Wednesday.

The Japanese Yen (JPY) gains some positive traction during the Asian session on Tuesday and for now, seems to have snapped a two-day losing streak against the US Dollar (USD). Meanwhile, the USD/JPY pair erodes a part of the strong gains registered over the past two days amid some repositioning trade ahead of the release of the latest consumer inflation figures from the United States (US) later today. In the meantime, escalating tensions between the US and  Iran-backed Houthi rebels in Yemen lend support to the safe-haven JPY.

That said, reduced bets for an imminent shift in the Bank of Japan’s (BoJ) policy stance should keep a lid on any meaningful appreciating move for the JPY. Reports, citing sources, suggested that BoJ Governor Kazuo Ueda’s comments last week were misinterpreted and policymakers see little need to abandon the negative interest rate policy this month. This, along with a generally positive risk tone, which tends to undermine traditional safe-haven assets, might contribute to limiting the downside for the USD/JPY pair. 

Traders also seem reluctant to place aggressive directional bets and prefer to wait for more clarity about the timing of when the Federal Reserve (Fed) will start easing its policy and cut interest rates. Hence, the focus will remain glued to the outcome of a two-day FOMC monetary policy meeting, scheduled to be announced on Wednesday. The so-called “dot plot” should provide cues about the Fed’s rate path, which, in turn, will influence the USD price dynamics and determine the near-term trajectory for the USD/JPY pair.

Daily Digest Market Movers: Japanese Yen strengthens ahead of US CPI amid geopolitical risk

• The Japanese Yen turned out to be the worst-performing G10 currency on Monday after reports downplayed speculations that the Bank of Japan was close to tightening policy.
• A Reuters report on Friday, citing three sources familiar with the BoJ’s thinking, that Governor Ueda’s remarks last week on policy options were not intended to hint at a potential exit timing.
• Bloomberg News also reported on Monday, citing sources, that BoJ officials are yet to see enough evidence of strong wage growth to justify abandoning the negative rate policy this month.
• This comes on the back of the recent rally in the US equity markets, which closed at a new high for the year on Monday and in turn, exerted heavy downward pressure on the safe-haven JPY.
• A US defense official stated on Tuesday that Iran-backed Houthi rebels in Yemen fired a land-based cruise missile, reviving dmenad for the JPY and dragging the USD/JPY pair lower on Tuesday. 
• The US Dollar struggles to capitalize on the upbeat US jobs data-inspired positive move amid the uncertainty over when the Federal Reserve may start easing its policy rates and cut rates.
• A New York Fed survey showed on Monday that consumers expect inflation to be at 3.4% a year from now, down from an expectation of 3.6% in October and the lowest reading since April 2021.
• This, along with the stronger-than-expected US employment figures, lifted hopes of a soft landing for the US economy and pushed back against expectations for the first rate cut in March 2024.
• Investors now look forward to the crucial US consumer inflation data, which is expected to show that the headline CPI rose by 0.1% in November and the yearly pace ticked down to 3.1%.
• Meanwhile, the core gauge (excluding volatile food and energy prices) is anticipated to edge up from a 0.2% MoM rate to 0.3% in November and hold steady at 4.0% YoY.
• The focus, however, will remain glued to the highly-anticipated FOMC monetary policy decision on Wednesday, which will play a key role in influencing the near-term USD price dynamics.

Technical Analysis: USD/JPY finds some support near mid-145.00s, or 23.6% Fibo. level

From a technical perspective, the overnight failure near the 200-hour SMA and the subsequent fall during the Asian session on Tuesday warrants some caution for bullish traders. Any further decline, however, is likely to find some support near the 145.40 area, representing the 23.6% Fibonacci retracement level of the recent strong rebound from a multi-month low touched last Thursday. With oscillators on the daily chart still holding deep in the negative territory, some follow-through selling could make the USD/JPY pair vulnerable to accelerate the slide further towards the 145.00 psychological mark en route to the 38.2% Fibo. level, around the 144.70-144.65 region.

On the flip side, the 146.00 round figure now seems to act as an immediate barrier. Bulls, meanwhile, need to wait for a sustained strength beyond the 200-hour SMA resistance, currently pegged near mid-146.00s, before positioning for any further move up. The USD/JPY pair might then aim to surpass the 147.00 mark and test the next relevant hurdle near the 147.40-147.50 supply zone. The latter should act as a key pivotal point, which if cleared decisively will suggest that the recent sharp pullback from the 152.00 neighbourhood, or the YTD peak, has run its course and shift the bias in favour of bullish traders.