Japanese Yen bulls turn cautious ahead of US PCE data; seems poised to appreciate further

• The Japanese Yen continues with its relative outperformance amid hawkish BoJ expectations.
• Bets for a series of rate cuts by the Fed in 2024 undermines the USD and weighs on USD/JPY.
• Bears turn cautious and look to the US PCE Price Index for a fresh impetus later this Thursday.

The Japanese Yen (JPY) retains its positive bias against its American counterpart for the fifth straight day on Thursday, though less hawkish remarks by Bank of Japan (BoJ) officials cap gains. BoJ board member Seiji Adachi said on Wednesday that the economy is yet to reach a stage where the central bank could debate an exit from ultra-easy monetary policy. Adding to this, policymaker Toyoaki Nakamura noted on Thursday that we haven't reached a stage where we can say with conviction that sustained, stable achievement of 2% inflation accompanied by wage growth is in sight.

Investors, however, seem convinced that the Japanese central bank will eventually pivot away from its dovish stance, which, along with a weaker risk tone, continues to underpin the JPY. The disappointing release of the official Chinese PMI prints for November revived concerns about the worsening conditions in the world's second-largest economy and weighs on investors'
sentiment. This, along with the underlying bearish sentiment surrounding the US Dollar (USD), keeps the USD/JPY pair depressed near a three-month low heading into the European session on Thursday.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, fails to capitalize on the overnight recovery from its lowest level since August 11 amid growing acceptance that interest rates in the US have peaked. Furthermore, bets that the Federal Reserve (Fed) may begin easing its monetary policy as soon as March 2024 lead to a further decline in the US Treasury bond yields and continues to act as a headwind for the buck. This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the downside as traders now look to the US PCE Price Index. 

Daily Digest Market Movers: Japanese Yen retains its bullish bias despite less hawkish remarks by BoJ officials

• The Japanese Yen draws support from hawkish Bank of Japan expectations even though less hawkish comments by central bank officials hold back bulls from placing fresh bets..
• BoJ's Adachi says that Japan is yet to see a positive wage-inflation cycle become embedded enough and it is appropriate to patiently maintain the current easy policy.
• Adachi added that BoJ will take additional easing steps if needed and the move in October to make YCC flexible was not aimed at laying the groundwork for policy normalisation.
• BoJ board member Toyoaki Nakamura said on Thursday that the central bank must patiently maintain current monetary easing for the time being and will need some more time to change its stance.
• Japanese Retail Trade fell 1.6% in October but grew by 4.2% from a year earlier. The previous month's reading was revised higher to show a rise of 6.2% against 5.8% reported.
• Japanese Industrial Production rose more than expected, by 1% in October, as compared to the previous month's 0.5% uptick and increased 0.9% compared with a year earlier.
• The second estimate of the US GDP showed that the world's largest economy grew by a 5.2% annualized pace during the third quarter as compared to the 4.9% reported previously.
• The upbeat US macro data, however, was largely offset by more dovish comments by Federal Reserve officials, which reaffirmed bets for a series of rate cuts in 2024.
• Cleveland Fed President Loretta Mester saw clear progress in getting inflation to 2% and said that monetary policy must be nimble in current circumstances.
• Separately, Richmond Fed President Tom Barkin believes that inflation will be more stubborn than what they would like and is unwilling to take another interest rate hike off the table.
• US rates futures markets are now pricing in more than 100 bps of rate cuts next year, starting in May, and the yield on the rate-sensitive two-year US government bond is at its lowest since July.
• This keeps the US Dollar bulls on the defensive and exerts some pressure on the USD/JPY pair for the fifth straight day, ahead of the release of the US PCE Price Index later this Thursday.

Technical Analysis: USD/JPY flirts with 100-day SMA pivotal support, not out of the woods yet

From a technical perspective, the USD/JPY pair, so far, has been showing some resilience below the 100-day Simple Moving Average (SMA), warranting caution for bearish traders. That said, oscillators on the daily chart are holding deep in negative territory but  still some distance away from being oversold. This, in turn, suggests that the path of least resistance for spot prices remains to the downside and any meaningful recovery attempt could be seen as a selling opportunity.

Meanwhile, the multi-month trough, around the 146.65 region touched on Wednesday, now seems to protect the immediate downside, below which the USD/JPY pair could accelerate the fall towards the 146.00 round figure. On the flip side, the 147.30-147.35 zone is likely to act as an immediate hurdle ahead of the overnight swing high, around the 147.90 area and the 148.00 mark. Any further move up could attract fresh sellers and remain capped near the 148.30 strong horizontal support breakpoint, now turned resistance.