Japanese Yen eyes multi-month low amid reduced bets for eventual BoJ pivot

• The Japanese Yen hangs near a weekly low amid the BoJ policy uncertainty and the risk-on mood.
• Geopolitical risks and intervention fears should help limit the downside for the safe-haven JPY.
• The Fed’s higher-for-longer rates narrative fails to inspire the USD bulls and might cap USD/JPY.

The Japanese Yen (JPY) remains on the defensive against its American counterpart for the third successive day and trades near the weekly low heading into the European session on Friday. Investors scaled back their expectations that the Bank of Japan (BoJ) will end negative interest rates in the coming months after data released last week showed that Japan's economy unexpectedly fell into recession. This, along with the prevalent risk-on environment, turns out to be key factors undermining the safe-haven JPY. 

That said, the recent warnings from Japanese officials that the government will intervene in the markets to stem any further JPY weakness is holding back traders from placing aggressive bearish bets amid geopolitical risks. Furthermore, the US Dollar (USD) struggles to gain any meaningful traction and build on the overnight goodish rebound from a nearly three-week low. This might also contribute to keeping a lid on any meaningful appreciating move for the USD/JPY pair in the absence of any relevant macro data. 

Daily Digest Market Movers: Japanese Yen is weighed down by a combination of factors

• Data released last week showed that Japan's economy unexpectedly entered a technical recession in the fourth quarter and smashes hopes that the Bank of Japan exit the ultra-easy policy regime, undermining the Japanese Yen. 
• The better-than-expected release of the flash PMI prints showed that the downturn in the Eurozone business activity eased in February, which further boosted investors’ sentiment and exerts additional pressure on the safe-haven JPY.
• Attacks on commercial vessels in the Red Sea by Yemen's Iran-aligned Houthi rebels show no sign of abating despite US and UK strikes, raising the risk of further military action and lending some soupport to the JPY.
• Japan's Ministry of Finance and the BoJ recently warned that they’re watching the exchange rate closely and are willing to intervene in the market to stem any further weakness in the domestic currency.
• Meanwhile, the FOMC meeting minutes on Wednesday, along with comments by a slew of influential Federal Reserve officials, reiterated the message that the central bank will keep interest rates higher for longer.
• Fed Vice Chair Philip Jefferson said on Thursday that he was cautiously optimistic about progress on inflation and that he will be looking at the totality of data when weighing interest rate cut options, not a single indicator.
• Separately, Philadelphia Fed President Patrick Harker noted that the central bank is approaching the point of cutting interest rates, though policymakers remain unsure of when specifically, that might happen.
• Furthermore, Fed Governor Lisa Cook believes that the current monetary policy stance is restrictive and would like to have greater confidence that inflation is converging to 2% before beginning interest rate cuts.
• Adding to this, Fed Governor Christopher Waller expects the FOMC to begin lowering at some point this year, but he will need more evidence to see that inflation is cooling before he is willing to support interest rate cuts.
• According to the CME FedWatch Tool, the current market pricing indicates about a 30% chance that the Fed will start cutting interest rates in May, much lower than a more than over 80% chance a month ago.
• Moreover, fresh signs of strength in the US labor market remain supportive of elevated US Treasury bond yields, which favours the US Dollar bulls and supports prospects for a further move up for the USD/JPY pair.
• The US Department of Labor reported that the number of Americans applying for unemployment insurance benefits declined to 201K during the week ending February 17 from the 213K in the previous week.

Technical Analysis: USD/JPY remains within striking distance of multi-month top, bulls retain control

From a technical perspective, any meaningful pullback is likely to find decent support near the 150.00 psychological mark. This is followed by the weekly low, around the 149.70-149.65 region, which if broken could drag the USD/JPY pair further towards the 149.35-149.30 horizontal support en route to the 149.00 mark. Some follow-through selling below the 148.80-148.70 strong horizontal resistance breakpoint might shift the bias in favour of bearish traders and pave the way for deeper losses.

On the flip side, bulls might still wait for a sustained strength beyond the 150.85-150.90 area, or a multi-month top touched last week, before placing fresh bets. Given that oscillators on the daily chart are holding comfortably in the positive territory and are still away from being in the overbought zone, the USD/JPY pair might then climb to the 151.45 hurdle. The momentum could extend towards the 152.00 neighbourhood, or a multi-decade peak set in October 2022 and retested in November 2023.