Japanese Yen Bears Cautious Ahead of BoJ Policy Update

The Japanese Yen has seen some haven flows and a partial recovery during the Asian session on Thursday. It had dropped to a nearly one-month low the previous day. The global risk sentiment worsened after the Federal Reserve’s hawkish rate cut on Wednesday, providing some support to the safe-haven Yen. The Yen’s uptick may also be due to repositioning before the crucial Bank of Japan policy decision, as there is a risk of a surprise rate hike at the end of the December meeting.

The Federal Reserve cut its benchmark policy rate by 25 basis points to 4.25%-4.50% on Wednesday, the third rate cut since September. The dot plot shows policymakers now expect only two quarter-point rate cuts next year, compared to four forecasted in September. Fed Chair Jerome Powell said inflation remains somewhat elevated relative to the 2% goal. The yield on the 10-year US government bond hit its highest closing since May 31, and the US Dollar rose to a two-year high after the Fed’s cut.
Elevated US bond yields and expectations that the Bank of Japan will keep rates unchanged continue to weigh on the Yen. However, Yen bears are cautious and waiting for cues about a January rate hike from the latest BoJ policy update. Later in the early North American session, US macro data like the final Q3 GDP and Weekly Initial Jobless Claims may provide some impetus. The market will then focus on the US inflation data, the US Personal Consumption Expenditures Price Index, due on Friday.

After a recent strong move up from 100-day Simple Moving Average support or the monthly low, a break above the 155.00 psychological mark could be a key trigger for bullish traders. Daily chart oscillators have positive traction and are not in the overbought zone. If it sustains above 155.00, the USD/JPY pair could surpass the 155.40-155.45 intermediate hurdle and aim for 156.00. The momentum could extend to test the multi-month top around 156.75 touched in November.

On the downside, the 154.25 area is immediate support before 154.00. Further selling could expose the weekly low around 153.15. If broken, it could drag the pair to the 152.55-152.50 zone. Any further decline might be seen as a buying opportunity and be limited near the 20-day SMA pivotal support around 152.20. Failure to defend these support levels could shift the near-term bias in favor of bearish traders and make spot prices vulnerable to weakening towards 151.00.