Japanese Yen slides to over one-week low against USD; downside seems limited

• The Japanese Yen drifts lower for the second successive day against its American counterpart. 
• A further recovery in the US bond yields underpins the USD and supports the USD/JPY pair. 
• Traders now look to Trump’s speech for a fresh impetus ahead of the BoJ decision on Friday. 

The Japanese Yen (JPY) remains on the backfoot against its American counterpart for the second straight day and slides to over a one-week low during the Asian session. As investors digest the better-than-expected release of Trade Balance data from Japan, the underlying bullish tone across the global financial markets turns out to be a key factor undermining the safe-haven JPY. This, along with a modest US Dollar (USD) uptick, bolstered by a further recovery in the US Treasury bond yields, acts as a tailwind for the USD/JPY pair. 

Any meaningful JPY depreciation, however, still seems elusive in the wake of the growing acceptance that the Bank of Japan (BoJ) will hike interest rates at the end of a two-day policy meeting on Friday. In contrast, the Federal Reserve (Fed) is expected to lower borrowing costs twice this year, which might keep a lid on the US bond yields and the USD. Furthermore, concerns about the economic fallout from US President Donald Trump’s trade policies could offer support to the JPY and contribute to capping the USD/JPY pair. 

Japanese Yen bulls remain on the sidelines amid positive risk tone, despite BoJ rate hike bets

• The Japanese Yen ticked higher after government data released this Thursday showed that Japan recorded a trade surplus of ¥130.9 billion in December, compared to expectations for a deficit of ¥55 billion. 
• The turnaround was driven chiefly by resilient exports, which grew more than expected, by the 2.8% YoY rate in December. This, however, marked a notable slowdown from the 3.8% rise seen in the prior month. 
• Meanwhile, imports picked up after contracting by the 3.8% YoY rate in November and grew 1.8% last month, missing consensus estimates for a 2.6% rise and indicating that local demand remains subdued.
• Annual spring wage negotiations kicked off in Japan on Wednesday, with the leaders of the top business lobby and the biggest labor unions agreeing on the need for pay hikes for more workers amid soaring prices. 
• The Bank of Japan, which is scheduled to announce its monetary policy decision on Friday, has repeatedly said that sustained and broad-based wage hikes are a prerequisite to raising short-term interest rates.
• The markets are pricing in over a 90% chance that the BoJ will raise interest rates at the end of the January 23-24 meeting, from 0.25% to 0.50%, which would be the highest since the 2008 global financial crisis.
• This marks a big divergence in comparison to market expectations that the Federal Reserve will lower borrowing costs at least two times by the end of this year amid signs of abating inflationary pressures in the US. 
• Some follow-through uptick in the US Treasury bond yields assists the US Dollar in holding steady above the monthly low touched on Wednesday and acts as a tailwind for the USD/JPY pair amid the risk-on mood. 
• Investors now look forward to the release of the US Weekly Initial Jobless Claims for some impetus ahead of US President Donald Trump’s speech later today and the outcome of a two-day BoJ policy meeting on Friday. 

USD/JPY needs to find acceptance above the 157.00 mark for bulls to retain intraday control

From a technical perspective, spot prices earlier this week found decent support and bounced off the lower end of a multi-month-old ascending channel. The subsequent strength beyond the 156.00 mark and the 156.30-156.35 area favors bullish traders. Moreover, oscillators on the daily chart have again started gaining positive traction and support prospects for further gains. Hence, some follow-through move towards the 156.75-156.80 region, en route to the 157.00 round figure, looks like a distinct possibility. The latter should act as a key pivotal point, which if cleared decisively should pave the way for a further move up towards the 157.55 area, the 158.00 mark, the 158.35-158.40 region and the 159.00 neighborhood, or a multi-month top touched on January 10. 

On the flip side, the 156.30-156.25 area now seems to protect the immediate downside ahead of the 156.00 mark. The next relevant support is pegged near the 155.55-155.50 area, below which the USD/JPY pair could accelerate the fall towards the 155.00 psychological mark, which now coincides with the lower boundary of the ascending channel. Some follow-through selling below the 154.80-154.75 region, or over a one-month low touched on Tuesday, will be seen as a fresh trigger for bearish traders and drag spot prices to the 154.00 round figure en route to mid-153.00s and the 153.00 mark.