Anna 
The Japanese yen demonstrated resilience against the U.S. dollar, marking its second consecutive day of strengthening on Friday, rebounding from one-month lows despite a lack of sustained momentum. The aftermath of Japan’s New Year’s Day earthquake, coupled with declining inflation in Tokyo and weak wage growth figures, is anticipated to postpone the Bank of Japan’s (BoJ) plans to deviate from its ultra-dovish stance in order to curb yen appreciation. Concurrently, ongoing geopolitical uncertainties and economic challenges faced by China continue to bolster the yen’s status as a relative safe-haven.
Further contributing to the yen’s ascent is the weakening position of the U.S. dollar (USD), exerting downward pressure on USD/JPY. Despite marginally positive U.S. consumer inflation data and assertive remarks from Federal Reserve (Fed) officials, prevailing market sentiment leans towards a heightened likelihood of an interest rate cut at the upcoming March FOMC policy meeting. This perception is perceived as a drag on the dollar. However, tempered expectations regarding aggressive policy easing from the Federal Reserve have provided some stabilization for Treasury yields, thus mitigating potential substantial downside risks.
Given the intricate nature of the underlying economic dynamics, exercising caution is recommended before initiating new bearish positions. Confirmation of the exhaustion of USD/JPY’s recent recovery from multi-month lows would be prudent, necessitating a substantial follow-through sell-off. Market participants are eagerly awaiting the release of the U.S. Producer Price Index (PPI), in conjunction with insights from Minneapolis Fed President Neel Kashkari, both of which could influence the dollar’s trajectory and offer fresh impetus. Despite these factors, the currency pair appears poised to conclude the week with a second consecutive weekly gain.
