The Japanese Yen rebounds from a multi-week low, but potential gains appear limited as traders await the U.S. CPI report

The Japanese Yen (JPY) has made a slight recovery against the U.S. Dollar (USD) after hitting its lowest level since early August on Thursday, bringing the USD/JPY pair down to the 149.00 mark during the European session. Recent official data indicated that Japan's Producer Price Index (PPI) remained unchanged in September, with the yearly rate rising more than expected, which is seen as providing some support for the JPY.

Conversely, the U.S. Dollar is consolidating its recent gains, reaching an eight-week high, as traders await the latest U.S. consumer inflation figures. This has led some traders to scale back their bullish positions on the USD/JPY pair. Additionally, uncertainty surrounding the Bank of Japan's (BoJ) rate-hike plans, combined with a risk-on market sentiment, may limit potential losses for the JPY ahead of Japan's snap election on October 27.

Daily Market Movers Digest: Japanese Yen Bulls Show Hesitance Ahead of U.S. CPI Report

• Data released on Tuesday revealed a decline in Japan's real wages for August after two months of gains, coupled with a decrease in household spending. This has raised concerns about the strength of private consumption and the sustainability of the economic recovery.
• Additionally, comments from Japan's Prime Minister Shigeru Ishiba regarding monetary policy have added to the uncertainty surrounding the BoJ's rate-hike plans, which pressured the Japanese Yen and pushed the USD/JPY pair higher.
• A BoJ report published on Thursday showed that the PPI in Japan remained stable in September, contrary to expectations of a 0.3% decline, while the yearly rate unexpectedly increased from 2.6% in August to 2.8%.
• A quarterly survey from the Japanese central bank revealed that 85.6% of Japanese households expect prices to rise in the coming year, a slight decrease from the previous survey's 87.5%, providing some support to the Yen.
• The U.S. Dollar climbed to its highest level since August 16, bolstered by hawkish comments from the FOMC minutes released on Wednesday. Some policymakers expressed a preference for a smaller 25 bps rate reduction amid persistent inflation concerns.
• 'Furthermore, there was a consensus that the larger rate cut should not dictate a fixed path for future cuts and shouldn't be interpreted as a negative economic signal.
• Dallas Fed President Lorie Logan stated her preference for smaller rate reductions, citing ongoing inflation risks and uncertainties in the economic outlook.
• Boston Fed President Susan Collins reiterated that monetary policy is data-dependent and not on a predetermined path, emphasizing the importance of maintaining healthy labor market conditions.
• San Francisco Fed President Mary Daly also noted that the size of the recent cut does not indicate the size of future cuts, suggesting one or two more rate cuts this year could occur if economic conditions align with her expectations.
• According to the CME Group's FedWatch Tool, market participants are now pricing in a higher likelihood of a 25 bps rate cut in November, with over a 20% chance that the Fed will maintain current interest rates.
• The yield on the two-year U.S. government bond reached its highest level since August 19, while the benchmark 10-year Treasury yield increased for the sixth consecutive day, hitting its highest level since July 31.
• Investors are now focused on the upcoming U.S. Consumer Price Index (CPI) release later today, which, along with the U.S. Producer Price Index (PPI) scheduled for Friday, could significantly influence market expectations regarding the Fed's rate-cut trajectory and affect the USD/JPY pair.

Technical Outlook: the USD/JPY is likely to attract dip-buyers near the horizontal support level of 148.70-148.65.

A sustained close above the 38.2% Fibonacci retracement level of the July-September decline and the 149.00 mark could serve as a fresh trigger for bullish traders. Oscillators on the daily chart are gaining positive traction and remain away from overbought territory, indicating that the path of least resistance for the USD/JPY pair is upward. A further rise towards the psychological 150.00 mark, en route to the 50% retracement level around 150.75-150.80, appears to be a distinct possibility.

Conversely, a significant decline below the 149.00 mark could attract buyers near the 148.70-148.65 region, which should help limit downside potential for the USD/JPY pair near the 148.00 round figure. Should this pivotal point be breached, it may trigger technical selling, dragging prices down to the intermediate support at 147.35, followed by the 147.00 mark and the 146.50 area.