Japanese Yen Trims Part of Weekly Losses Against USD; upside potential appears limited

• The Japanese Yen benefits from a modest decline in the USD, although the upside appears limited.
• Uncertainty surrounding a BoJ rate hike in December and risk appetite could limit the JPY.
• Expectations of a less dovish Fed could underpin the USD and offer support to the USD/JPY pair.

The Japanese Yen (JPY) gains some positive traction during the Asian session on Thursday, with the USD/JPY pair snapping a three-day winning streak to a two-week high reached the previous day. The JPY appears to find some support in modest weakness in the US Dollar (USD), driven by strengthening expectations that the Federal Reserve (Fed) will cut interest rates next week. Aside from this, the JPY’s intraday strength lacks an obvious fundamental catalyst and is more likely to be limited amid fading hopes for another rate hike by the Bank of Japan (BoJ) in December.

Furthermore, the recent good bounce in US Treasury yields and the prevailing risk appetite environment should help limit the safe-haven JPY. That said, JPY bears could refrain from placing aggressive bets and opt to wait for the BoJ’s last policy meeting of the year next week. This, along with geopolitical risks and uncertainty surrounding US President-elect Donald Trump’s policies, could offer some support to the safe-haven JPY. Meanwhile, the mixed fundamental background warrants caution before confirming that the USD/JPY pair has peaked.

Japanese Yen Might Struggle to Attract Significant Buying Amid Fading Hopes for BoJ December Rate Hike

• A Bloomberg report on Wednesday said the Bank of Japan (BoJ) sees little cost in waiting before raising interest rates again, although officials are still open to a hike next week depending on data and market developments. .
• Furthermore, mixed signals from BoJ officials suggest the central bank is in no rush to tighten policy, dragging the Japanese Yen to a two-week low against its US counterpart on Wednesday.
• Meanwhile, Japan’s economy is expanding moderately, while wages are rising steadily and inflation remains above the BoJ’s 2% target. This indicates that the conditions for another rate hike are in place.
• Traders, however, could refrain from placing aggressive directional bets on the Japanese Yen ahead of the BoJ decision next week, just hours after the Federal Reserve’s expected interest rate cut.
• The US Bureau of Labor Statistics (BLS) reported Wednesday that the overall Consumer Price Index rose 0.3% in November, marking the largest increase since April, and the annual rate accelerated to 2.7 %.
• Meanwhile, the core CPI, which excludes volatile food and energy prices, rose 0.3% during the reported month and was 3.3% in the 12 months to November, in line with market expectations .
• According to the CME Group’s FedWatch tool, the Federal Reserve is expected to deliver a third consecutive rate cut at the end of the December meeting next week due to signs of a cooling labor market.
• Meanwhile, the US CPI report indicated that progress in reducing inflation towards the Fed’s 2% target has stalled, which could force the Fed to take a more cautious stance on inflation. reduction of interest rates in the future.
• Markets are already anticipating that the Fed could hit the pause button as early as the January meeting amid growing uncertainty over US President-elect Donald Trump’s policies and looming tariff plans. .
• This, in turn, lifts the benchmark 10-year US government bond yield to a two-week high on Thursday, which acts as a tailwind for the US dollar and should continue to offer some support to the USD/JPY pair. .
• Thursday’s US economic docket includes the release of the US Producer Price Index and the usual initial jobless claims data, which could provide some boost later in the North American session.

USD/JPY needs to strengthen beyond the 152.70-152.80 confluence for the bulls to remain in control in the near term

From a technical perspective, the overnight break through the 200-day SMA, around the 152.00 level, was seen as a new trigger for bullish traders. Furthermore, the oscillators on the daily chart remain comfortably in positive territory and are still far from being in the overbought zone, suggesting that the path of least resistance for the USD/JPY pair remains to the upside.

The subsequent move higher, however, stops near the confluence of 152.70-152.80, which comprises the 200-SMA on the 4-hour chart and the 50% retracement level of the recent pullback from the multi-month high . Such an area could continue to act as an immediate hurdle, above which the USD/JPY pair could surpass the 153.00 level and aim to test the next relevant hurdle near the 153.65 region, or the 61.8% Fibonacci retracement level. .

On the other hand, weakness below the 152.00 level could now find some support near the 151.75 area, or the 38.2% Fibonacci retracement level. Any further slippage could continue to attract new buyers and remain capped near the round figure of 151.00. The latter should act as a fundamental point, below which the USD/JPY pair could slide to the intermediate support of 150.50 before finally falling to the psychological level of 150.00.