Japanese yen Consolidates Overnight Losses

The Japanese yen (JPY) attracted some buyers during the Asian session on Wednesday and reversed some of the previous day’s sharp losses against the US dollar (USD). As investors assess the impact of Japan’s powerful New Year’s Day earthquake, expectations that the Bank of Japan (BoJ) and the Federal Reserve (Fed) will reverse their policy differences in 2024 have provided some support for the yen. Indeed, the Bank of Japan is expected to abandon its ultra-loose monetary policy settings, while the Federal Reserve is expected to make a series of rate cuts throughout the year.

This, coupled with a moderating risk tone, favored the yen’s relative safe-haven status but failed to help the USD/JPY pair capitalize on the overnight rebound from the 140.80 area above 140. On the other hand, the dollar consolidated strong gains from Tuesday – its biggest one-day percentage gain since October – and continued to be strongly supported by higher U.S. Treasury yields. This, in turn, could prevent traders from placing aggressive bearish bets around the USD/JPY pair ahead of the release of FOMC minutes later in the US session.

Meanwhile, U.S. economic data on Wednesday also includes the ISM Manufacturing Purchasing Managers Index (PMI) and JOLTS job openings data, which may provide some momentum for USD/JPY moves. Market attention will then turn to the U.S. private sector employment ADP report, as well as official non-farm payrolls (NFP) data due on Thursday and Friday respectively. These key labor market reports will influence market expectations for the Fed’s next policy moves, which will have a key impact on U.S. dollar price dynamics and determine the near-term trend of major currency pairs.

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