Japanese Yen remains on the front foot against USD, lacks follow-through buying

• The Japanese Yen builds on the overnight gains against the USD amid geopolitical risks.
• Hopes for an imminent shift in the BoJ’s policy stance further lend support to the JPY.
• Bulls might prefer to wait for the outcome of a two-day FOMC meeting on Wednesday.

The Japanese Yen (JPY) strenghtnes for the second successive day against its American counterpart on Tuesday and drags the USD/JPY pair to the 147.20-147.15 area, or a multi-day low during the Asian session. Geopolitical tensions in the Middle East are showing no signs of easing, which, along with the Bank of Japan’s (BoJ) hawkish tilt last week, turn out to be key factors lending some support to the safe-haven JPY.

Moreover, the ongoing downfall in the US Treasury bond yields, resulting in the narrowing of the US-Japan rate differential, inspires the JPY bulls amid subdued US Dollar (USD) price action. That said, diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed) in 2024 and an early interest rate hike in March should act as a tailwind for the Greenback and help limit losses for the USD/JPY pair.

Traders might also refrain from placing directional bets and prefer to wait for the outcome of the highly-anticipated two-day FOMC monetary policy meeting, scheduled to be announced on Wednesday. This makes it prudent to wait for strong follow-through selling before confirming that the USD/JPY pair’s appreciating move witnessed since the beginning of this month has run its course.

Daily Digest Market Movers: Japanese Yen retains its strength against USD, lacks bullish conviction

• Against the backdrop of the Bank of Japan’s hawkish tilt, fears that a further escalation of conflicts in the Middle East could engulf the region in a wider war benefit the safe-haven Japanese Yen.
• BoJ Governor Kazuo Ueda signaled last week that conditions for phasing out huge stimulus and pulling short-term interest rates out of negative territory were falling into place.
• Reports suggest that President Joe Biden will authorize US military action in the Middle East, which would likely begin in the next couple of days and come in waves against a range of targets.
• The US Treasury lowered its forecast for federal borrowing to $760 billion from a prior estimate of $816 billion, dragging the US bond yields lower across the board and undermining the US Dollar.
• The downside for the USD/JPY pair seems limited as traders might prefer to wait for the outcome of a two-day FOMC policy meeting on Wednesday for cues about the timing of the first rate cut.
• Investors have been scaling back their expectations for a more aggressive policy easing by the Fed in 2024 in the wake of the upbeat US macro data and signs that the economy is still in good shape.
• Heading into the key central bank event risk, traders on Tuesday might take cues from the release of the Conference Board’s Consumer Confidence Index and JOLTS Job Openings data.
• Investors this week will also confront the release of important US macroeconomic data scheduled at the beginning of a new month, including the Nonfarm Payrolls (NFP) on Friday.

Technical Analysis: USD/JPY remains confined in a familiar trading band around the 50-day SMA

From a technical perspective, the USD/JPY pair currently trades around the 100-day Simple Moving Average (SMA) pivotal point. With oscillators on the daily chart holding comfortably in the positive territory and still far from being in the overbought zone, any subsequent slide below the 147.00 mark is likely to find decent support near last week’s swing low, around the 146.65 region. Some follow-through selling, however, will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.

On the flip side, the 147.65 area could act as an immediate hurdle ahead of the 148.00 round figure and the 148.30-148.35 zone. The next relevant hurdle is pegged near the monthly peak, around the 148.80 region. Bulls might wait for a sustained strength beyond the latter before placing fresh bets. The USD/JPY pair might then surpass the 149.00 mark and accelerate the positive move towards the 149.30-149.35 intermediate hurdle en route to the 150.00 psychological mark.