Japanese Yen remains on the back foot against against USD; downside seems limited

• The Japanese Yen retreats from over a one-month high touched against the USD on Wednesday.
• Rebounding US bond yields help revive the USD demand and undermine the lower-yielding JPY.
• December BoJ rate hike bets, trade war jitters and geopolitical risks could limit losses for the JPY.

The Japanese Yen (JPY) drifts lower against its American counterpart during the Asian session on Thursday and moves away from a five-week top touched the previous day. Expectations that US President-elect Donald Trump's expansionary policies will boost inflation, along with stalled progress on inflation, suggest that the Federal Reserve (Fed) might be cautious about further rate cuts. This, in turn, triggers a fresh leg up in the US Treasury bond yields, which helps revive the US Dollar (USD) demand and drives flows away from the lower-yielding JPY.

Apart from this, a generally positive risk tone is seen as another factor undermining the safe-haven JPY. However, speculation that the Bank of Japan (BoJ) may hike interest rates again in December, along with Trump’s tariff threats and geopolitical risks, could limit the downside for the JPY. Furthermore, expectations that Scott Bessent – Trump's US Treasury Secretary nominee – will restrain budget deficits and bets for another 25-basis points Fed rate cut in December could act as a headwind for the US bond yields. This might cap the buck and the USD/JPY pair. 

Japanese Yen continues losing ground on rebounding US bond yields, positive risk tone

• Japan’s stronger Consumer Price Index and steady corporate service inflation reaffirmed Bank of Japan Governor Kazuo Ueda's view that the economy was progressing towards sustained wages-driven inflation.
• This keeps the door open for another BoJ interest rate hike in December, which, along with trade war jitters, lifted the safe-haven Japanese Yen to a five-week high against its American counterpart on Wednesday. 
• Japan's parliament convened an extraordinary session, with Prime Minister Shigeru Ishiba's minority government seeking to enact a supplementary budget to help inflation-hit households and revise a political funds law.
• The flight to safety and expectations that Scott Bessent – Trump's US Treasury secretary nominee – will restrain budget deficits dragged the benchmark 10-year US Treasury yields to a level not seen in a month.
• The US Dollar recovers from a two-week low touched on Wednesday amid a pickup in the US bond yields, bolstered by Wednesday's US macro data, which underscored the US economic resilience and a solid labor market.
• The Bureau of Economic Analysis reported that the economy expanded steadily in the third quarter, by a 2.8% annualized pace – matching the first estimate – and consumer spending rose 3.5% – the most this year.
• Meanwhile, data released by the US Department of Labor showed that the number of individuals filing new applications for unemployment insurance fell to 213K for the week ending November 22 from 215K prior.
• Separately, Durable Goods Orders climbed 0.2% in October as compared to the 0.4% decline (revised from -0.8%) recorded in the previous month and was worse than the consensus estimates for an increase of 0.5%.
• Furthermore, the Personal Consumption Expenditures (PCE) Price Index rose to 2.3% on a yearly basis in October from 2.1% in September and the core gauge edged higher from 2.7% to 2.8% during the reported month.
• The data did little to bolster the case for the Federal Reserve to ease again next month, although market participants are pricing in over a 65% chance of another 25-basis points rate cut at the December FOMC meeting. 
• However, expectations that Trump's expansionary policies will boost inflation and limit the scope for the Fed to cut rates further lend support to the USD and contribute to the USD/JPY pair's move up on Thursday. 
• Trading volumes are expected to remain thin on the back of the Thanksgiving Day holiday in the US, warranting some caution for aggressive traders ahead of the Tokyo consumer inflation figures on Friday. 

USD/JPY might confront stiff resistance near 200-day SMA pivotal support breakpoint

The overnight breakdown below the very important 200-day Simple Moving Average (SMA) could be seen as a key trigger for bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and support prospects for further USD/JPY depreciation. That said, a modest recovery from the vicinity of the 38.2% Fibonacci retracement level of the September-November rally warrants some caution. Any further move up, however, is more likely to remain capped near the 152.00 mark (200-day SMA), above which spot prices could climb to the 152.60 area, en route to the 153.00 mark and the 153.30 horizontal barrier. 

On the flip side, the overnight swing low, around the 150.45 area, closely followed by the 150.20-150.15 region (38.2% Fibo. level) and the 150.00 psychological mark now seem to act as immediate support levels. A convincing break below the latter has the potential to drag the USD/JPY pair to the 149.40-149.35 intermediate support en route to the 149.00 round figure and the 50% retracement level, around the 148.25-148.20 zone.