JPY extends steady intraday descent against USD; bullish potential seems intact

• The Japanese Yen drifts lower amid a slight improvement in the global risk sentiment.
• Hawkish BoJ expectations and rising trade tensions should back the safe-haven JPY.
• Fed rate cut bets could act as a headwind for the Greenback and cap the USD/JPY pair. 

The Japanese Yen (JPY) extends its steady intraday descent through the Asian session on Friday, which, along with a modest US Dollar (USD) uptick, lifts the USD/JPY pair closer to mid-148.00s in the last hour. The global risk sentiment gets a minor lift in reaction to some positive comments out of the White House and from Canadian officials and reports that there will be enough Democratic votes to avoid a US government shutdown. Adding to this, a source familiar with the Bank of Japan’s (BoJ) thinking said that the heightening global uncertainty could affect the rate-hike timing and undermine the safe-haven JPY. 

Market players, however, seem convinced that the BoJ will hike interest rates again amid the broadening inflationary pressures in Japan, which, in turn, should limit any meaningful JPY depreciation. Moreover, hawkish BoJ expectations led to the recent sharp narrowing of the rate differential between Japan and other countries, which should contribute to limiting losses for the lower-yielding JPY. Apart from this, bets that the Federal Reserve (Fed) will cut rates several times this year should cap the ongoing USD recovery from a multi-month low and warrant caution before placing bullish bets around the USD/JPY pair. 

Japanese Yen addes to intraday losses after comments from a source familiar with BoJ’s thinking

• “Japan’s economy and price developments appear on track, but overseas risks have risen,” said a source familiar with the Bank of Japan’s thinking. “The heightening global uncertainty is a concern and could affect the BoJ’s rate-hike timing,” the source added, a view echoed by two more sources.
• Ontario Premier Doug Ford said that the meeting with US Commerce Secretary Howard Lutnick was positive and productive and that it has lowered the temperature on the ongoing trade war. 
• Adding to this, Canada’s Industry Minister Francois-Philippe Champagne and Finance Minister Dominic LeBlanc said that the discussion was constructive and that talks would continue.
• Senate Minority Leader Chuck Schumer signaled that Democrats will vote with Republicans to pass a six-month spending bill that would keep the US government funded through September. 
• Russian President Vladimir Putin expressed conditional support for a 30-day cease-fire proposal put forward by the US and Ukraine, providing a modest lift to the global risk sentiment. 
• Japan’s Prime Minister Shigeru Ishiba, earlier this week, underscored the significance of the spring wage negotiations and urged trade unions and companies to boost worker’s pay.
• A major Japanese labour union group said on Thursday its member unions had struck agreements for substantial wage hikes and the average rise was just over 5%, slightly smaller than last year.
• The preliminary results of Japan’s annual spring labor negotiations, known as Shunto, are due this Friday amid hopes that bumper wage hikes seen last year will continue this year.
• This, along with signs of broadening inflationary pressures in Japan, gives the Bank of Japan headroom to hike rates further, keeping the Japanese government bond yields elevated. 
• The yield on the benchmark 10-year JGB remains close to its highest level since October 2008 touched on Monday, which, in turn, should continue to underpin the Japanese Yen.
• The US Dollar, on the other hand, struggles to attract any meaningful buyers and hangs near a multi-month low amid bets that the Federal Reserve will resume its rate-cutting cycle soon.
• In fact, market participants are currently pricing in the possibility of three 25 basis point Fed rate cuts each at the June, July, and October monetary policy meetings. 
• The bets were lifted by Thursday’s data showing that the US Producer Price Index (PPI) was unchanged in February and the yearly rate slowed to 3.2% from  3.7% in January. 
• This comes on top of softer-than-expected US Consumer Price Index (CPI) report on Wednesday and points to signs of easing inflation, which should allow the Fed to cut rates further. 
• Traders now look forward to the Preliminary release of the Michigan US Consumer Sentiment and Inflation Expectations Index for short-term opportunities on the last day of the week. 

USD/JPY needs to find acceptance above the 149.00 mark for bulls to seize near-term control

From a technical perspective, any subsequent move-up is likely to confront some resistance near the 148.60-148.70 support breakpoint ahead of the 149.00 mark and the weekly swing high, around the 149.20 region. A sustained strength beyond the latter could trigger a short-covering rally towards the 150.00 psychological mark, above which the USD/JPY pair could climb to the 150.65-150.70 zone. The momentum could extend further towards the 151.00 mark and the monthly peak, around the 151.30 region.

On the flip side, the 147.75-147.70 horizontal zone now seems to have emerged as an immediate support. A convincing break below could make the USD/JPY pair vulnerable to accelerate the fall towards the 147.00 round figure en route to the 146.55-146.50 region, or the lowest level since October touched earlier this week. Given that oscillators on the daily chart are holding in negative territory and are still away from being in the oversold zone, some follow-through selling will be seen as a fresh trigger for bears and pave the way for further losses.