The Japanese Yen draws support from a combination of factors, albeit lacks follow-through.

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• The Japanese Yen draws support from a combination of factors, albeit lacks follow-through.
• The USD remains depressed below a multi-month low and also exerts pressure on USD/JPY.
• Hawkish Fed expectations favour the USD bulls and should act as a tailwind for the major.

The Japanese Yen (JPY) ticks higher during the Asian session on Wednesday and is now looking to build on its goodish bounce from the YTD low touched against its American counterpart the previous day. Market participants seem convinced that wage growth this year may outpace that of 2023 and pave the way for the Bank of Japan to exit its decade-long ultra-loose monetary policy. Apart from this, persistent worries about geopolitical tensions stemming from conflicts in the Middle East and slowing economic growth in China continue to act as a tailwind for the JPY. This, along with the overnight US Dollar (USD) pullback from its highest level in almost three months, exerts some downward pressure on the USD/JPY pair.

Meanwhile, Japan’s real wages fell for a 21st straight month in December and household spending dropped for a tenth consecutive month, which is seen as an unwelcome development for the BoJ. This, along with the underlying bullish tone across the global equity markets, might hold back traders from placing fresh bullish bets around the JPY. Furthermore, the recent upbeat US macro data, including a blowout jobs report on Friday, and recent hawkish remarks by Federal Reserve (Fed) officials smashed expectations for a more aggressive policy easing in 2024. This remains supportive of elevated US Treasury bond yields, which favours the USD bulls and should help limit any meaningful slide for the USD/JPY pair.

From a technical perspective, this week’s failure to find acceptance above the 148.80 level constitutes the formation of a bearish double-top pattern. That said, oscillators on the daily chart – though have been losing traction – are still holding in the positive territory and warrant some caution before positioning for deeper losses. That said, some follow-through selling below the 100-day Simple Moving Average (SMA), currently pegged near the 147.60-147.55 region, could drag the USD/JPY pair further towards the 147.00 round figure. A convincing break below the latter could accelerate the corrective decline further towards the 146.35 intermediate support en route to sub-146.00 levels, or the monthly low touched last week.

On the flip side, momentum back above the 148.00 mark now seems to confront some resistance near the 148.30-148.35 region. Bulls, meanwhile, are likely to wait for a sustained strength beyond the 148.80 double-top resistance before placing fresh bets. The USD/JPY pair might then surpass an intermediate hurdle near the 149.55-149.60 region and aim to reclaim the 150.00 psychological mark.

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