Japanese Yen Braces for Impact: Fed and US Data in Focus

• The Japanese Yen (JPY) attracts some buyers following an intraday downtick on Monday and trades with a mild positive bias against its American counterpart heading into the European session. A further escalation of conflicts in the Middle East tempers investors’ appetite for riskier assets, which is evident from a generally softer tone around the equity markets. This, along with the Bank of Japan’s (BoJ) hawkish tilt last week, signalling that conditions for phasing out huge stimulus and pulling short-term interest rates out of negative territory were falling into place, lends some support to the safe-haven JPY. 
• The US Dollar (USD), on the other hand, extends its sideways consolidative price move and remains confined in a familiar band held over the past two weeks or so. This, in turn, acts as a headwind for the USD/JPY pair amid a modest decline in the US Treasury bond yields. It, however, remains to be seen if the JPY can build on the uptick as traders might prefer to wait on the sidelines ahead of the highly-anticipated two-day FOMC meeting starting on Tuesday. Investors this week will also confront important US macro releases scheduled at the start of a new month, including the Nonfarm Payrolls (NFP) on Friday.
• In the meantime, diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed) and the uncertainty over the timing of the first interest rate cut should limit any meaningful USD slide in the absence of any relevant macro data. Adding to this, the weaker Tokyo Core CPI released on Friday might contribute to capping any further appreciating move for the JPY. Hence, it will be prudent to wait for strong follow-through selling around the USD/JPY pair before confirming that a two-day-old uptrend and the recent bounce from the 146.65 region, or last week’s swing low has run out of steam. 

Daily Digest Market Movers: Japanese Yen ticks higher amid BoJ’s hawkish tilt, geopolitical tensions

• A further decline in the Tokyo CPI raised doubts that the Bank of Japan will phase out negative interest rates anytime soon and is seen undermining the Japanese Yen.
• The US Dollar stands tall near its highest level since December 13 touched last week and turns out to be another factor acting as a tailwind for the USD/JPY pair.
• Traders, however, seem reluctant and might prefer to move to the sidelines ahead of the crucial two-day FOMC monetary policy meeting starting on Tuesday.
• Data released on Friday showed that inflation rose modestly in December and reaffirmed expectations that the Federal Reserve will cut rates by the middle of 2024.
• The US Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index held steady at 2.6% on a yearly basis in December.

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