Japanese Yen sticks to stronger PPI-led modest gains; lacks follow-through buying

• The Japanese Yen strengthens slightly following the release of stronger PPI print from Japan.

• The uncertainty over how soon the BoJ could raise rates keeps the JPY bulls on the defensive.

• The USD preserves its recent gains and lends support to USD/JPY ahead of the US CPI report.

The Japanese Yen (JPY) edges higher during the Asian session on Wednesday as a stronger Producer Price Index (PPI) from Japan keeps the door open for a December interest rate hike by the Bank of Japan (BoJ). The uptick, however, lacks bullish conviction amid scepticism regarding the BoJ's intention to tighten its monetary policy further. Apart from this, a further recovery in the US Treasury bond yields contributes to capping gains for the lower-yielding JPY.

Furthermore, the recent US Dollar (USD) move up to a near one-week high, touched on Tuesday, should help limit the downside for the USD/JPY pair. Traders might also refrain from placing aggressive directional bets and opt to wait for the release of the US consumer inflation figures. The crucial US data would offer cues about the Federal Reserve's (Fed) rate-cut path and provide some meaningful impetus ahead of the key central bank event risks next week. 

Japanese Yen lacks bullish conviction amid wavering expectations that BoJ will hike rates in December

A preliminary report by the Bank of Japan revealed this Wednesday that Japan's Producer Price Index (PPI) increased by 0.3% in November and rose by 3.7% compared to the same time period last year.

This comes on top of last Friday's wage growth figures, which showed that October base pay grew 2.7% YoY, or the fastest rate since November 1992 and gives the BoJ another reason to hike interest rates.

Moreover, BoJ Governor Kazuo Ueda recently said that the timing of the next rate hike was approaching, though some media reports suggested the central bank may skip a rate hike later this month.

Furthermore, BoJ's more dovish board member Toyoaki Nakamura said last week that the central bank must move cautiously in raising rates, fueling uncertainty about the BoJ’s December policy decision.

The US Treasury bond yields ended at their highest levels in at least a week on Tuesday on the back of growing acceptance that the Federal Reserve will adopt a cautious stance on cutting interest rates. 

The US Dollar preserves its gains registered over the past three days and offers some support to the USD/JPY pair as traders keenly await the release of the latest US consumer inflation figures later today.

The headline US Consumer Price Index (CPI) is expected to increase to 0.3% in November as compared to 0.2% in the previous month and rise to 2.7% on a year-over-year basis from 2.6% in October. 

Meanwhile, the core gauge (excluding food and energy prices) is forecast to remain unchanged at 0.3% for November and at a 3.3% YoY rate, raising concern over lingering inflationary pressures.

The data won’t necessarily derail expectations for a rate cut by the Fed at next week’s meeting, though would suggest fewer rate cuts coming at a slower pace than many had been anticipating.

USD/JPY needs to find acceptance above 200-day SMA, around 152.00 for bulls to seize control

The overnight failure to find acceptance above the 152.00 mark, which coincides with the 200-day Simple Moving Average (SMA), warrants caution for bulls. Moreover, neutral oscillators on the daily chart make it prudent to wait for a sustained strength beyond the said barrier before positioning for an extension of the recent bounce from a near two-month low. The USD/JPY pair might then climb to the 152.70-152.75 region, or the 50% retracement level of the downfall from a multi-month top touched in November. This is followed by the 153.00 round figure, above which spot prices could extend the momentum towards the 61.8% Fibonacci level, around the 153.70 area. 

On the flip side, weakness below the 151.55-151.50 region could be seen as a buying opportunity and find decent support near the 151.00 mark. Some follow-through selling, however, might expose the 150.00 psychological mark, with some intermediate support near the 23.6% Fibo. level, around the 150.50 area. Failure to defend the said support levels could drag the USD/JPY pair back towards the 149.55-149.50 region en route to the 149.00 round figure and 148.65 zone, or the lowest level since October 11 touched last week.