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USD/JPY struggles for a firm recovery as the Fed is expected to start lowering interest rates in early 2024.
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The USD index refreshes five-month low amid risk-on mood.
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The BoJ will reduce bond-buying operations in 2024.
The USD/JPY pair delivered a pullback move after discovering moderate buying interest near 142.00. The asset is expected to resume its downside journey as the pullback move seems short-lived due to downbeat US Dollar Index (DXY).
S&P500 futures were flat in the European trading session, portraying a calmer market mood amid a short week amid festive mood. The US dollar index refreshed a five-month low near 101.40 as investors hope the Federal Reserve’s (Fed) rate-holding campaign has ended and it will start cutting them to avoid any impact on the labor market.
The United States Core Personal Consumption Expenditure Price Index (PCE) for November, released on Friday, fell to 3.2% from 3.3% and the previous reading of 3.5%. A softer-than-estimated decline in core inflation raised expectations for the Fed’s initial rate cut.
It is highly anticipated that Fed policymakers may scale back initial rate cut expectations without ensuring the achievement of price stability. A stable US economy could keep inflation sticky due to a tight labor market.
On the Tokyo front, the Bank of Japan (BoJ) is expected to support an exit from ultra-loose monetary policy only after gaining confidence that wage growth can keep inflation steadily above 2%.
The BoJ has announced that it will taper its bond buying program in 2024. This could be the result of inflation remaining above 2% for more than a year.
USD/JPY
