Japanese Yen bulls remain on the sidelines despite hot Tokyo CPI, lack of USD buying

■  The Japanese Yen attracts some buyers in reaction to stronger Tokyo CPI print.

■  Subdued USD price action contributes to the USD/JPY pair’s modest downtick.

■  Traders now seem reluctant and prefer to wait for the US macro data/event risks.

The Japanese Yen (JPY) ticks higher during the Asian session and reverses a part of the previous day's losses after data released on Tuesday showed that consumer inflation in Tokyo – Japan's capital city – rebounded from 22-month lows in February. This comes on top of speculations that another substantial round of pay hikes this year by Japanese firms could fuel consumer spending and demand-driven inflation, opening the door for a potential policy normalization by the Bank of Japan (BoJ). Adding to this, speculations that Japanese authorities will intervene in the markets to prop up the domestic currency, along with the cautious market mood, underpin the safe-haven JPY.

The US Dollar (USD), on the other hand, continues with its struggle to attract any meaningful buyers in the wake of firming expectations for an imminent shift in the Federal Reserve's (Fed) policy stance. This turns out to be another factor that contributes to the offered tone surrounding the USD/JPY pair, though the downside seems cushioned ahead of the key US macro data and Fed Chair Jerome Powell's congressional testimony. In the meantime, growing acceptance that the Fed will keep interest rates higher for longer should hold back traders from placing aggressive directional bets. This, in turn, warrants some caution before positioning for any further downside for the currency pair.

Daily digest market movers: Japanese Yen draws support from reviving bets for an eventual BoJ pivot

A rise in Tokyo CPI renews chatter that the Bank of Japan will exit the negative interest rates regime in the coming month and provides a modest lift to the Japanese Yen.

The Statistics Bureau reported that consumer inflation in Japan's capital rebounded to the 2.5% YoY rate in February from a 22-month low of 1.6% in the previous month.

Meanwhile, a core reading, which excludes both energy and fresh food, fell to 3.1% last month from 3.3% in January, though remained above the BoJ’s 2% annual target.

Sticky inflation, along with expectations for another bumper pay hike this year, should allow the BoJ to end its ultra-loose monetary policy settings sooner rather than later.

The au Jibun Bank Service PMI for Japan was finalized at 52.9 for February as compared to the preliminary estimate of 52.5 and the 53.1 registered in the previous month.

Japan's economy minister, Yoshitaka Shindo, denied a media report over the weekend that Japan is considering calling an end to deflation 

in the wake of rising prices.

The US Dollar bulls remain on the defensive amid firming expectations that the Federal Reserve will eventually start cutting interest rates at the June policy meeting.

Atlanta Fed President Raphael Bostic does not anticipate back-to-back rate cuts when they begin and still expects only two 25-basis point rate cuts by the end of this year.

Bostic further said that inflation is on track to return to the 2% target, but he needs to see more progress and gain confidence in disinflation before voting to reduce policy rates.

Traders now seem reluctant and prefer to wait on the sidelines ahead of this week's important US macro releases, starting with the ISM Services PMI later this Tuesday.

The focus, however, remains on Fed Chair Jerome Powell's semi-annual congressional testimony on Wednesday and Thursday, and the US Nonfarm Payrolls (NFP) on Friday.

Technical analysis: USD/JPY is likely to find decent support near the 150.00 psychological mark

From a technical perspective, the USD/JPY pair has been oscillating in a familiar range over the past three weeks or so. This constitutes the formation of a rectangle on short-term charts. Against the backdrop of a rally from the December 2023 low, this might still be categorized as a bullish consolidation phase. Moreover, oscillators on the daily chart are holding comfortably in the positive territory and suggest that the path of least resistance for spot prices is to the upside.

That said, it will still be prudent to wait for a sustained breakout through the trading range hurdle, around the 150.75-150.85 region, which coincides with the YTD peak touched in February, before positioning for any further gains. The USD/JPY pair might then surpass the 151.00 mark and accelerate the momentum towards the 151.45 intermediate resistance en route to the 152.00 neighbourhood, or a multi-decade peak set in October 2022 and retested in November 2023.

On the flip side, the 150.00 psychological mark now seems to protect the immediate downside. Any further decline is likely to attract fresh buyers near last week's swing low, around the 149.20 area. This is followed by the 149.00 mark, which if broken might shift the bias in favour of bears. The subsequent could drag the USD/JPY pair to the 148.30 support en route to the 148.00 mark and the 100-day Simple Moving Average (SMA), currently pegged near the 147.80 region.