Japanese Yen rallies to 148.00 against USD as BoJ officials lift rate hike bets

• The Japanese Yen attracts strong follow-through buying amid renewed BoJ rate hike bets.
• The uncertainty about the Fed’s rate-cut path undermines the USD and weighs on USD/JPY.
• The fundamental backdrop supports prospects for a further depreciating move for the pair.

The Japanese Yen (JPY) adds to its strong intraday gains against its American counterpart and drags the USD/JPY pair to a four-week low, around the 148.00 mark during the early European session on Thursday. A rise in Tokyo CPI, along with hawkish remarks by Bank of Japan (BoJ) officials, lifted bets that the central bank will exit the negative interest rates regime as soon as this month. This, along with a generally weaker tone around the equity markets, provides a goodish lift to the safe-haven JPY and drags the currency pair lower for the third successive day. 

The US Dollar (USD), on the other hand, languishes near its lowest level since early February amid mixed signals about the Federal Reserve's (Fed) rate-cut path and does little to lend any support to the USD/JPY pair. This, in turn, suggests that the path of least resistance for the currency pair is to the downside and supports prospects for a further near-term depreciating move. Traders now look to Fed Chair Powell's second day of testimony, which, along with the US Weekly Initial Jobless Claims and Trade Balance data, might drive the USD ahead of the NFP report on Friday.

Daily Digest Market Movers: Japanese Yen continues scaling higher amid bets for an early BoJ pivot

• A rise in Tokyo inflation revives bets that the Bank of Japan will pivot away from its ultra-easy monetary policy settings as soon as this month and continues to underpin the Japanese Yen.
• The Jiji News Agency reported on Wednesday that BoJ might consider ending negative interest rates amid expectations that this year's pay negotiations will yield solid results to boost consumption.
• BoJ policymaker Junko Nakagawa noted that the central bank is gathering information to make policy decisions while Japan's economy makes steady progress toward the achievement of the price target.
• Nakagawa added that the prospect of sustainably achieving the 2% inflation target is gradually heightening, though consumption remains weak in both nominal and real terms, which warrants attention.
• Furthermore, BoJ Governor Kazuo Ueda said that the central bank will consider rolling back the massive stimulus programme once the positive cycle of wages and inflation is confirmed.
• Data released on Thursday showed that real wages for Japanese workers shrank in January for the 22nd straight month, albeit at the slowest pace in over a year on weakening price pressures.
• Federal Reserve Chair Jerome Powell told US lawmakers on Wednesday that the central bank will cut interest rates this year, though wants to see more evidence that inflation is falling to the 2% target.
• Minneapolis Fed President Neel Kashkari said that he had pencilled in two interest-rate cuts in 2024 and added that he may reduce the number of cuts in the wake of the incoming stronger macro data.
• The Automatic Data Processing (ADP) reported that private-sector employment in the US rose by 140K in February, less than the 150K expected, while wages increased at the slowest pace in 2-1/2 years.
• The data points to signs of a cooling labor market and keep the path open for Fed rate cuts later this year, which continues to undermine the US Dollar and further exerts pressure on the USD/JPY pair.
• Traders now look to Powell's second day of testimony before the Senate Banking Committee, which, along with the US Weekly Initial Jobless Claims and Trade Balance data, could provide some impetus.
• The focus, however, will remain glued to the release of the closely-watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday.

Technical Analysis: USD/JPY bears now await a break below the 148.00 mark and the 100-day SMA

From a technical perspective, the recent repeated failures ahead of the 151.00 mark, or the YTD peak, and the subsequent fall favours bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and support prospects for a further near-term depreciating move. Some follow-through selling below the 23.6% Fibonacci retracement level of the December-February rally, around the 148.40-148.35 region, will reaffirm the bearish setup and drag the USD/JPY pair to the 148.00 mark. This is closely followed by the 100-day Simple Moving Average (SMA), currently around the 147.80 zone, which if broken decisively will expose the 38.2% Fibo. level, near the 146.80 area, with some intermediate support near the 147.00 round figure.

On the flip side, the 149.00 mark might now act as an immediate strong barrier. Any further move up is more likely to attract fresh sellers and remain capped near the 149.70 horizontal support breakpoint, now turned resistance. That said, some follow-through buying, leading to a subsequent strength beyond the 150.00 psychological mark, will suggest that the recent corrective slide from the YTD peak has run its course and shift the bias in favour of bullish traders. The USD/JPY pair might then surpass the 150.40-150.50 hurdle and make a fresh attempt to conquer the 151.00 round-figure mark.