Japanese Yen surges to over three-month peak against USD amid rising bets for a BoJ pivot

• The Japanese Yen catches aggressive bids on Thursday and rallies to a three-month high against the USD.
• BoJ Governor Ueda discussed options for a potential pivot from negative interest rates and boosts the JPY.
• A softer risk tone further benefits the safe-haven JPY and exerts heavy downward pressure on USD/JPY.

The Japanese Yen (JPY) strengthens across the board and rallies around 225 pips against the US Dollar, hitting over a three-month peak during the early part of the European session on Thursday. Investors have been rapidly pricing in the possibility that the Bank of Japan (BoJ) will scrap the negative interest-rate regime sooner than expected. Adding fuel to speculation of a move away from the ultra-loose monetary policy, the BoJ has been conducting a special survey of market participants to discuss its impact and side effects. Furthermore, BoJ Governor Kazuo Ueda's visit to Prime Minister Fumio Kishida’s office lifted bets for a major policy shift by the Japanese central bank and provided a strong boost to the JPY.

In contrast, the Federal Reserve (Fed) is expected to start cutting interest rates as early as March 2024 in the wake of easing inflationary pressures and signs that the historically tight labor market is loosening. This, in turn, triggers a USD corrective slide from a two-week high touched on Wednesday, despite a goodish rebound in the US Treasury bond yields. Meanwhile, a softer risk tone is seen as another factor benefitting the JPY's relative safe-haven status. This, in turn, drags the USD/JPY pair closer to the 145.00 psychological mark and supports prospects for a further depreciating move. Traders now look to the release of the US Weekly Initial Jobless Claims data for some impetus later during the North American session.

Daily Digest Market Movers: Japanese Yen gets a strong boost from rising bets for an early BoJ policy shift

• Signs that a tight US job market is loosening raise concerns about an economic slowdown and weigh on investors' sentiment, benefitting the safe-haven Japanese Yen.
• The US Labor Department reported Tuesday that job openings declined by 617K to 8.73 million in October, or their lowest level in two-and-a-half-years.
• The ADP report showed that US private-sector employers added just 103K jobs in November, down from the previous month's downwardly revised 106K.
• The readings reaffirmed market expectations about an imminent shift in the Federal Reserve's policy stance and bets for a 25 basis points rate cut at the March policy meeting.
• The slew of key US jobs data will continue on Thursday and Friday with the release of Weekly Initial Jobless Claims and the key Nonfarm Payrolls, respectively.
• Israeli forces stormed southern Gaza's main city on Tuesday in the most intense day of combat of ground operations against Hamas militants, worsening the humanitarian crisis.
• The mixed Trade Balance data from China showed that imports unexpectedly declined by 0.6% in November, fueling concerns about weak domestic demand amid looming recession risks.
• BoJ Governor Ueda told PM Kishida that the central bank hopes to che whether wages will rise sustainably, whether wage rises will push up service prices and whether demand will be strong.
• Bank of Japan Governor Kazuo Ueda said this Thursday that accommodative monetary policy and stimulus measures are supporting the Japanese economy.
• Ueda added that his explanation of monetary policy to PM Kishida included the wage hike outlook for next year, reaffirming bets that the central bank will move away from negative interest rates regime.
• Ueda earlier said that they have not yet reached a situation in which they can achieve the price target sustainably and stably and with sufficient certainty.

Technical Analysis: USD/JPY finds some support near 145.00 mark, not out of the woods yet

From a technical perspective, this week's repeated failures to move back above the 100-day SMA support breakpoint, now turned resistance, currently around the 147.45 area, and the subsequent decline favours bearish traders. Moreover, oscillators on the daily chart are holding deep in the negative territory and are still far from being in the oversold zone. This, in turn, validates the near-term negative outlook for the USD/JPY pair.

Furthermore, a break below the 38.2% Fibonacci retracement level of the July-October rally could be seen as a fresh trigger for bearish traders and supports prospects for further losses. Some follow-through selling below the 145.00 mark could then drag the USD/JPY pair to the 50% Fibo. level, around the 144.55-144.50 region. 

On the flip side, recovery beyond mid-145.00s could get extended, through is more likely to attract fresh sellers near the 146.00 round figure. This, in turn, should cap the USD/JPY pair near the 146.20 region, or the previous weekly low. That said, a sustaiend strength beyond the latter might trigger a short-covering rally and pave the way for additional gains.