The Japanese Yen (JPY) remains under pressure against the US Dollar (USD) on Tuesday, as the Bank of Japan (BoJ) and the Federal Reserve (Fed) continue to diverge in their monetary policy outlooks. The USD/JPY pair trades near the 143.00 mark, after hitting a four-day low of 142.67 earlier in the session.
The BoJ kept its short-term interest rate target at -0.1% and its 10-year government bond yield target at 0% on Monday, as widely expected by the market. The central bank also maintained its forward guidance, which states that it expects the current low interest rate environment to continue until inflation exceeds 2% in a stable manner.
However, BoJ Governor Kazuo Ueda, speaking at the post-meeting press conference, said that the central bank will not hesitate to take additional easing measures if necessary. He also said that the BoJ will need to keep scrutinizing the wage-price virtuous cycle, which is crucial for achieving the inflation target.
Ueda’s comments suggest that the BoJ is still far from considering an exit from its ultra-loose monetary policy, unlike some of its global peers. In fact, Ueda said that the BoJ is not in a situation where it can discuss the timing and method of policy normalization.
Fed officials push back against rate cut bets, USD gains traction
Meanwhile, the USD gained some positive traction on Tuesday, as several Fed officials tried to dampen the market expectations of early and aggressive interest rate cuts in 2024. Chicago Fed President Austan Goolsbee said that he was confused over the market reaction to last week’s FOMC meeting, and that the Fed is not precommitting to cutting rates soon and swiftly.
Adding to this, Cleveland Fed President Loretta Mester said that financial markets had gotten a little bit ahead of the Fed on when to expect rate cuts. Mester’s comments align with those from two other 2024 voting FOMC members who on Friday stressed that rate cuts were not imminent.
The Fed’s hawkish stance was also supported by the upbeat US consumer confidence data, which rose to 115.8 in December from 111.9 in November, beating the market expectation of 113.0. The data indicated that US consumers remained optimistic about the economic outlook, despite the surge in inflation and the Omicron variant.
USD/JPY technical outlook: Bears in control below 200-day SMA
From a technical perspective, the USD/JPY pair remains in a downtrend, as it trades below the 200-day Simple Moving Average (SMA), which currently stands at 144.76. The pair also faces strong resistance at the 144.00 psychological level, which has capped the recovery attempts in the past few sessions.
On the downside, the pair has a minor support at the 142.50 level, which coincides with the 23.6% Fibonacci retracement of the rally from 141.75 to 143.67. A decisive break below this level could open the door for a retest of the multi-month low of 141.75, which was touched on December 24.
The next major support is seen at the 141.00 mark, which aligns with the 38.2% Fibonacci retracement of the larger upswing from 136.65 to 151.00. A breach of this level could signal a bearish continuation and expose the 140.00 psychological level, followed by the 50% Fibonacci retracement at 139.33.
The Relative Strength Index (RSI) on the daily chart is hovering near the oversold territory, suggesting that the bearish momentum is strong, but also that a corrective bounce could be due. However, as long as the pair remains below the 200-day SMA, the outlook remains negative for the USD/JPY pair.
