Japanese Yen ticks lower against USD ahead of the pivotal FOMC policy decision

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• The Japanese Yen continues losing traction against the USD, though lacks follow-through.
• The uncertainty over a BoJ policy pivot, along with the risk-on mood, undermines the JPY.
• Subdued USD price action might cap gains for USD/JPY ahead of the key FOMC decision.

The Japanese Yen (JPY) lost positive traction against its American counterpart on Tuesday after data released from the United States (US) showed that consumer prices rose unexpectedly in November. Apart from this, reports that the Bank of Japan (BoJ) policymakers see little need to end negative rates in December, along with the prevalent risk-on environment, further seem to undermine the safe-haven JPY. This, in turn, assists the USD/JPY pair to build on the overnight bounce of around 75 pips from the 144.70 area and attract some follow-through buying during the Asian session on Wednesday. 

That said, firming expectations about an imminent shift in the BoJ's policy stance, along with the risk of a further escalation of geopolitical tensions in the Middle East, hold back traders from placing aggressive bearish bets around the JPY. Furthermore, the uncertainty over the timing of when the Federal Reserve (Fed) will start cutting interest rates in 2024 undermines the US Dollar (USD) and might contribute to capping the USD/JPY pair. Traders might also opt to wait on the sidelines ahead of the key central bank event risk – the outcome of the highly-anticipated FOMC policy meeting.

The Federal Reserve (Fed) is scheduled to announce its decision later during the US session and is widely anticipated to leave interest rates unchanged. The focus, meanwhile, will remain glued to the accompanying monetary policy statement and updated economic projections, which include the so-called "dot plot". Apart from this, Fed Chair Jerome Powell's remarks at the post-meeting press conference will offer cues about the near-term policy outlook. This, in turn, will influence the USD price dynamics and drive the USD/JPY pair ahead of the BoJ meeting next week. 

Daily Digest Market Movers: Japanese Yen drifts lower against USD ahead of Fed decision

• The US Labor Department reported on Tuesday that the headline Consumer Price Index (CPI) edged up 0.1% in November and the yearly rate ticked down to 3.1% from the 3.2% previous.
• The annual Core CPI inflation, which excludes volatile food and energy prices, held steady at 4.0% as forecast and rose 0.1% on a monthly basis, little changed as compared to the previous month.
• The November numbers were still well above the Federal Reserve's 2% target, which, along with Friday's stronger US jobs data, forced investors to further scale back bets for a March rate cut.
• This allowed the US Dollar to pare the overnight losses and helped the USD/JPY pair to attract some dip-buying near the 144.70 area, though the momentum lacked any follow-through.
• Traders have been trimming their bets for a stronger Japanese Yen after reports indicated that the Bank of Japan policymakers see little need to end negative rates in December
• Adding to this, the prevalent risk-on environment is seen undermining the JPY's safe-haven status and assists the USD/JPY pair to gain some follow-through traction on Wednesday. 
• The Tankan survey showed that Business confidence at big Japanese manufacturers improved more than expected in the fourth quarter, albeit doing little to impress the JPY bulls.
• Reporting on the annual Central Economic Work Conference that ended on Tuesday, state media said that China will step up policy adjustments to support an economic recovery in 2024.
• Hope for additional stimulus from China further boosts investors' sentiment and largely overshadows the risk of a further escalation of geopolitical tensions in the Middle East. 
• Yemen's Iran-backed Houthi rebels issue regulations for navigating through the Red Sea amid Israel embargo and the warning includes a restriction on travel towards "Occupied Palestinian territories".
• The focus remains glued to the key FOMC decision, which will be accompanied by updated economic projections and followed by Federal Reserve Chair Jerome Powell's presser.
• Investors will look for fresh cues about the timing of when the US central bank may begin cutting rates in 2024 amid signs of easing inflation and the still resilience US economy.

Technical Analysis: USD/JPY bulls need to wait for a move beyond the 200-hour SMA hurdle

From a technical perspective, the USD/JPY pair found decent support on Tuesday near the 38.2% Fibonacci retracement level of the recent solid rebound from a multi-month low touched last week. The lack of any strong follow-through buying, along with the fact that oscillators on the daily chart are holding deep in the negative territory, warrants some caution for bullish traders. Hence, any subsequent move up is likely to confront resistance near the 146.00 round-figure mark. This is closely followed by the 200-hour Simple Moving Average (SMA), currently around the 146.25 region, which if cleared decisively could set the stage for additional gains.

On the flip side, weakness below the 145.00 psychological mark might continue to attract some buyers near the 144.70 area, or the 38.2% Fibo. level. A convincing break below will be seen as a fresh trigger for bearish traders and drag the USD/JPY pair further towards the 50% Fibo. support near the 144.00 round figure, en route to the 143.55-143.50 region (61.8% Fibo.). Spot prices could eventually weaken below the 143.00 mark and aim to test the next relevant support near mid-142.00s.

Japanese Yen price today

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the weakest against the Australian Dollar.

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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