USD/JPY continues Powell-led losses to fresh 14-week low, BOJ’s Kuroda, US PCE Inflation eyed

As Tokyo begins on Thursday, USD/JPY bears rejoice US Dollar weakness to print the lowest level in more than three months near 137.30. The most recent Yen pair depreciation may also be attributable to declining US Treasury bond yields and a risk-on market sentiment.

Fed Chair Jerome Powell made his first public appearance since the November Federal Open Market Committee (FOMC) meeting by addressing the economic outlook, inflation, and employment at the Brookings Institution. The official added that it makes sense to lower the rate of interest rate hikes and suggested that this may occur as early as the December meeting. Lisa D. Cook, a member of the Federal Reserve Board of Governors, lauded the inflation numbers to indicate that the Fed would likely take lesser steps in the future.

Following Powell's speech, market bets favoring a 50 basis point (bps) rate hike by the Federal Reserve in December climbed from 69.9% prior to the speech to over 75%, which subsequently weakened the US Dollar and Treasury yields while boosting equities.

As a result, the US Dollar Index (DXY) snapped a three-day upswing on Wednesday while displaying the worst daily decline in a week, not to mention the largest monthly decline in 12 years. Notable is that Wall Street benchmarks responded positively to Fed Chair Yellen's dovish comments, while 10-year Treasury bond yields reversed early gains to conclude November on a negative note around 3.61 percent.

Other than Fedspeak, the dismal US data and optimism about China’s Covid circumstances also dragged on the USD/JPY values. Among these, the US ADP Employment Change drew significant attention, as its November result of 127K represented the lowest readings since January 2021, compared to the 200K projected and 239K previous readings. Further, China reported only around 38,000 daily Coronavirus cases on Tuesday, conveyed on Wednesday, marking the second consecutive day of lowering virus levels after updating the record high. Not just the simple incidents, but also the progressive easing of virus-driven activity limits in big cities including as Zhengzhou, Guangzhou, and Chongqing, appeared to have benefited the Yen pair sellers.

Moving on, the Fed’s preferred inflation indicator, namely US Core Personal Consumption Expenditure (PCE) Price Index for October, predicted 5.0% YoY in October versus 5.1% previous, will be significant for immediate USD/JPY swings. Also significant will be the US ISM Manufacturing PMI for November, anticipated to be 49.8 versus 50.2 previously. The most recent rumors on the probable tightening of monetary policy by the Bank of Japan (BOJ) in 2023 highlight today's speech by BOJ Governor Haruhiko Kuroda.