Japanese Yen hangs near YTD low against USD, seems vulnerable to slide further

• The Japanese Yen loses traction after BoJ Deputy Governor Uchida’s remarks. 
• A positive risk tone further undermines the JPY and lends support to USD/JPY.
• The uncertain Fed rate cut path weighs on the USD and should cap the upside.

The Japanese Yen (JPY) weakens across the board in reaction to the Bank of Japan (BoJ) Deputy Governor Uchida Shinichi’s dovish remarks on Thursday, saying that the central bank will not hike aggressively upon ending negative rates. This, along with a generally positive tone around the equity markets, weighs heavily on the safe-haven JPY and lifts the USD/JPY pair back closer to the 148.80 barrier during the first half of the European session. That said, a combination of factors might hold back traders from placing aggressive directional bets and keep a lid on any further gains for the currency pair. 

Investors, meanwhile, seem convinced that wage growth in Japan this year may outpace that of 2023 and pave the way for the BoJ to exit its decade-long ultra-loose monetary policy. Furthermore, geopolitical tensions remain a key risk for the markets and could act as a tailwind for the JPY. The US Dollar (USD), on the other hand, languishes below its highest level since November 14 touched earlier this week amid the uncertainty over the timing and the pace of rate cuts by the Federal Reserve (Fed) in 2024. This might further contribute to keeping a lid on any further gains for the USD/JPY pair.

Daily Digest Market Movers: Japanese Yen continues losing ground dovish BoE remarks

• The Bank of Japan Deputy Governor Uchida Shinichi reiterated that the likelihood of sustainably achieving the price target is gradually increasing, which, in turn, weighs on the Japanese Yen. 
• Shinichi further added that Japan’s real interest rate is in deep negative territory and monetary conditions are very accommodative, and the same is not expected to change in a big way.
• Shinichi, however, noted that the BoJ won’t hike rates aggressively even after ending negative rate as the uncertainty over the outlook remains high, helping limit any further downside for the JPY. 
• The BoJ earlier this month signalled conviction on hitting the inflation goal and set the stage to pull interest rates out of negative territory at its upcoming meetings in March or April.
• BoJ Governor Kazuo Ueda had said that if the central bank gets evidence that a positive wage-inflation cycle will heighten, it would examine the feasibility of continuing with various steps under the massive stimulus programme.
• Japan’s biggest business lobby Keidanren and trade unions kicked off annual labour talks and big firms are expected to offer the highest wage increase in 31 years this year, paving the way for a shift in the BoJ’s policy stance.
• BoJ Executive Director Tokiko Shimizu said this Thursday that inflation has so far has been driven by cost-push factors and that even if negative rates are abandoned, accommodative conditions would remain in place.
• The US Dollar extends this week’s profit-taking slide from the highest level since November 14 and contributes to capping gains for the USD/JPY pair, though hawkish Federal Reserve expectations could act as a tailwind.
• The incoming US macro data suggested that the economy remains in good shape and gives the Fed more headroom to keep interest rates higher for longer, which, in turn, should continue to act as a tailwind for the buck.
• Several FOMC members, including Fed Chair Jerome Powell, don’t see an urgent case for lowering interest rates, suggesting that a rate cut isn’t likely until the May monetary policy meeting at the earliest.
• Fed Governor Adriana Kugler said on Wednesday that she is optimistic that inflation progress will continue, but stopped short of offering a timeline for when officials may be able to reduce borrowing costs.
• Boston Fed President Susan Collins said that she is looking for more evidence that inflation is on track toward the 2% target before moving to cut interest rates, though that step is more likely later this year.
• Minneapolis Fed chief Neel Kashkari noted that officials would like to see a few more months of inflation data before cutting interest rates and added that he thinks two to three cuts will be appropriate for 2024.
• Richmond Fed President Tom Barkin urged patience and said that it is a good idea for the central bank to take its time with interest-rate cuts given all of the uncertainty about where the US economy is headed.
• The yield on the benchmark 10-year US government bond holds comfortably above the 4.0% mark and supports prospects for the emergence of some USD dip-buying, warranting caution for the USD/JPY bears.

Technical Analysis: USD/JPY bulls await a breakout through the 148.70-80 multiple-tops barrier

From a technical perspective, bears need to wait for some follow-through selling below the 100-day Simple Moving Average (SMA), currently pegged near the 147.60-147.55 region, before positioning for deeper losses. The USD/JPY pair might then accelerate the fall to the 147.00 mark before dropping to the 146.35 intermediate support en route to sub-146.00 levels, or the monthly low touched last week.

Meanwhile, positive oscillators validate the positive outlook for the USD/JPY pair, though the formation of multiple-tops near the 148.75-148.80 region warrants caution for bullish traders. Hence, a sustained strength beyond the said barrier might trigger a fresh bout of a short-covering rally and lift spot prices to the 149.55-149.60 intermediate hurdle en route to the 150.00 psychological mark.