USD/JPY rebounds from 141.00 as Greenback climbs from recent lows

US Dollar climbs against the major currency bloc as investors pull back.
Thin Japan data leaves US labor and output figures as the key focus for the week.
Markets have begun to pare back rate-cut bets through 2024.

The USD/JPY rebounded on Tuesday, testing 142.00 after a clean bounce from the 141.00 handle to kick off the first trading week of 2024.

The new year opens up with another print of US Nonfarm Payrolls (NFP) coming down the pipe on Friday, and investors will be keeping a close eye on US output and labor figures due this week in the run-up to NFP.

Japan data to see minimal impact as markets await Fed rate cuts

Economic data from Japan is thin on the docket this week, with an update on foreign investment in Japanese stocks and bonds due early Thursday, closely followed by the Jibun Bank Manufacturing Purchasing Managers’ Index (PMI). Friday’s Japan data sees December’s update to Japan’s Monetary Base, the Jibun Bank Services PMI, and December’s Japan Consumer Confidence Index. All Japan data is strictly low-impact this week, and investors will be focused squarely on US labor figures as money markets start the slow process of sussing out rate cut expectations from the Federal Reserve (Fed).

Money markets have begun to walk back sky-high rate cut expectations in 2024, with median investor forecasts now seeing around 150 basis points in Fed rate declines through the year-end 2024. Market expectations have still run well ahead of the Fed’s own dot plot on rate expectations, which sees up to 75 basis points in rate reductions through the end of 2024.

The US S&P Global Manufacturing PMI missed the mark on Tuesday, declining to a four-month low of 47.9 in December versus the market forecast of a steady print of 48.2. Economic data continues to soften in the US, increasing the risk of a “soft landing” economic scenario that threatens to crimp growth and hobble employment, but the Fed will need a bigger push on the inflation front before rates can start coming down.

Wednesday’s US ISM Manufacturing PMI is expected to improve from 46.7 to 47.1 for December, and markets will be keeping a close eye on the Fed’s latest Meeting Minutes due to publish at 19:00 GMT. Investors will be tearing open the Open Market Committee’s latest minutes to try and draw a bead on how steeply Fed policymakers are leaning towards rate cuts, with some particularly eager market participants anticipating the next rate-cutting cycle to begin as soon as March.

USD/JPY Technical Outlook

The USD/JPY’s rebound on Tuesday sees the pair hamstrung between the 50-hour and 200-hour Simple Moving Averages (SMA) with the pair testing ground near the 142.00 handle.

The pair’s rebound from a 22-week low near 140.25 sees the USD/JPY making a climb back towards the 200-day SMA near the 143.00 handle, with near-term action favoring bidders as technical indicators roll over from deep within oversold territory. The Moving Average Convergence-Divergence hit its most oversold conditions since early 2023, and is poised to telegraph a potential rebound in the USD/JPY, the 50-day SMA is rotating into a bearish decline and could price in a technical ceiling in the near-term as the moving heads for the 200-day SMA.