Japanese Yen struggles near daily low against USD, intervention fears help limit losses

• The Japanese Yen stalls a two-day-old recovery trend from the YTD low touched on Tuesday.
• A positive risk tone and the uncertainty about BoJ’s policy shift undermine the safe-haven JPY.
• Reviving bets for an early rate cut by the Fed to cap the USD and act as a headwind for USD/JPY.

The Japanese Yen (JPY) comes under some renewed selling pressure on Friday and remains depressed against its American counterpart heading into the European session, though manage to hold above the YTD low touched earlier this week. Data released on Thursday showed that Japan’s economy unexpectedly contracted again during the fourth quarter, confirming a technical recession. This raises the uncertainty about the likely timing of when the Bank of Japan (BoJ) will exit the negative interest rates policy, which, along with the prevalent risk-on mood, is seen weighing on the safe-haven JPY. 

Apart from this, the emergence of some US Dollar (USD) buying, bolstered by a modest uptick in the US Treasury bond yields, lifts the USD/JPY pair to an intraday high, around the 150.35 region. That said, Thursday's weaker-than-expected US Retail Sales figures keep alive hopes for an early interest rate cut by the Federal Reserve (Fed) and hold back the USD bulls from placing aggressive bets. Apart from this, verbal intervention by Japanese authorities helps limit losses for the JPY and further contributes to capping the upside for the currency pair, warranting caution before positioning for additional gains.

Market participants now look to the US economic docket – featuring the release of the Producer Price Index (PPI), Housing Starts and the Preliminary Michigan Consumer Sentiment Index. This, along with speeches by influential FOMC members, will drive the USD demand and provide a fresh impetus to the USD/JPY pair. Apart from this, the broader risk sentiment should allow traders to grab short-term opportunities. Nevertheless, spot prices remain on track to post gains for the seventh straight week and register the highest weekly close since early November. 

Daily Digest Market Movers: Japanese Yen remains depressed amid positive risk tone, BoJ policy uncertainty

• Reduced bets for an imminent shift in the Bank of Japan's policy stance, along with the risk-on mood, fail to assist the safe-haven Japanese Yen to build on a two-day recovery trend from the YTD low.
• Japan's economy unexpectedly contracted in the fourth quarter on weak domestic demand and slipped into a recession, which might have derailed the BoJ's plan to exit its ultra-easy policy this year.
• BoJ Governor Kazuo Ueda said on Friday that the central bank will examine whether to maintain various easing measures when sustained, stable achievement of the price target comes into sight.
• Japan's Finance Minister Shunichi Suzuki reiterated on Friday that the government will closely monitor FX moves and it is important for currencies to move in a stable manner, reflecting fundamentals.
• Investors turned optimistic after the dismal US macro data released on Thursday pointed to possible signs of weakness in consumer spending and fuelled hopes for an early rate cut by the Federal Reserve.
• The Commerce Department reported that Retail Sales declined sharply by 0.8% in January, more than the 0.1% fall expected, while sales excluding auto contracted by 0.6% during the reported month.
• According to the CME Group's FedWatch Tool, bets for a rate cut of at least 25 basis points in May edged up to 40% and the odds for such a move in June stood at roughly 80% following the data.
• A separate report showed that import prices posted their biggest gain in nearly two years and jumped by 0.8% last month, though declined by 1.3% over the past 12 months through January.
• Meanwhile, the number of Americans who applied for unemployment benefits slid by 8K from 220K in the prior week, to a one-month low of 212K during the week ended February 10.
• Atlanta Fed President Bostic said on Thursday that the US central bank has made solid progress in lowering inflation and will soon contemplate cutting rates, though a strong economy argues for patience.
• The yield on the benchmark 10-year US government bond holds above the 4.0% mark and helps the USD to stall its corrective decline from a multi-month top, providing a goodish lift to the USD/JPY pair.
• The Israeli military said on Wednesday that its fighter jets began a series of strikes in Lebanon  in retaliation to a rocket fired into Northern Israel, raising the risk of a wider conflict in the Middle East.
• Investors now look to the US Producer Price Index (PPI), which is expected to ease to the 0.6% YoY rate from 1.0% previously, for fresh cues about the Fed's future policy decision and rate-cut path.
• Friday's US economic docket also features the release of Housing Starts and the Preliminary Michigan Consumer Sentiment Index, which, along with speeches by Fed officials, should provide some impetus.

Technical Analysis: USD/JPY struggles to capitalize on its intraday positive move, remains below mid-150.00s

From a technical perspective, any subsequent move up is likely to confront some resistance near the mid-150.00s ahead of the 150.85-150.90 region, or a multi-month top set on Tuesday. Some follow-through buying beyond the 151.00 round figure will be seen as a fresh trigger for bullish traders and pave the way for a further appreciating move. Given that oscillators on the daily chart are holding in the positive territory and are still away from the overbought zone, the USD/JPY pair might then climb to the 151.45 intermediate hurdle. The momentum could extend further towards the 152.00 neighbourhood, or a multi-decade peak set in October 2022 and retested in November 2023.

On the flip side, the overnight swing low, around mid-149.00s, now seems to protect the immediate downside ahead of the 149.25-149.20 area and the 149.00 round figure. The latter should act as a key pivotal point, which if broken decisively will suggest that the USD/JPY pair has formed a near-term top and set the stage for some meaningful corrective decline. The subsequent downfall has the potential to drag spot prices to the 148.35-148.30 region en route to the 148.00 mark and the 100-day Simple Moving Average (SMA) support near the 147.70-147.65 zone.