Anna 
The Japanese Yen (JPY) experienced a pullback on Friday after hitting a one-week high, snapping a two-day winning streak against the US Dollar (USD). The retreat followed the release of Japan’s core annual Consumer Price Index (CPI) for November, meeting expectations but raising uncertainties about the potential tightening of the Bank of Japan’s (BoJ) ultra-loose policy.
Minutes from the BoJ’s October monetary policy meeting revealed a consensus among members to patiently maintain the current easy policy, contributing to the undermining of the JPY.
In contrast, the USD saw a modest recovery from near five-month lows, prompting a rebound of approximately 70 pips for the USD/JPY pair from the 141.85 area, marking a fresh weekly low. Despite this recovery, expectations of an early interest rate cut by the Federal Reserve (Fed) continue to limit the strength of the USD.
Japan’s core CPI has remained below the 2% target for the 20th consecutive month, increasing pressure on the BoJ to consider moving away from its ultra-dovish stance. This dynamic adds to the challenges faced by the USD/JPY pair.
Traders appear cautious, refraining from committing to directional bets and opting to await the release of the US Core Personal Consumption Expenditure (PCE) Price Index during the early North American session. This data holds significant influence over the Fed’s future policy decisions, shaping USD demand and determining the near-term trajectory for the USD/JPY pair.
Despite the USD’s recovery, the fundamental backdrop suggests a tilt in favor of JPY bulls, indicating that the path of least resistance for the pair may be to the downside. The ongoing uncertainty surrounding BoJ policy and the potential impact of US inflation figures maintain a sense of caution among traders.
