USD/JPY faces pressure near 143.00 as Fed’s rate cut bets soar

• USD/JPY struggles for a firm recovery as the Fed is expected to start lowering interest rates in early 2024.
• The USD index refreshes five-month low amid risk-on mood.
• 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 remain flat in the European trading session, portraying a quiet market mood in a truncated week amid festive mood. The US Dollar Index has refreshed five-month low near 101.40 as investors hope that Federal Reserve’s (Fed) rate-tightening campaign is over and it will start cutting them to avoid any impact on the labour market.

The United States core Personal Consumption Expenditure price index (PCE) for November, released on Friday, was decelerated to 3.2% against expectations of 3.3% and the former reading of 3.5%. A softer-than-projected decline in the underlying inflation has boosted expectations for early rate cuts by the Fed.

It is highly anticipated that Fed policymakers may continue to push back expectations of early rate cuts without ensuring the achievement of the price stability. Resilient US economy due to tight labour market could keep inflation sticky ahead.

On the Tokyo front, the Bank of Japan (BoJ) is expected to endorse an exit from the ultra-loose monetary policy only after gaining confidence that wage growth could keep inflation steadily above 2%.

The BoJ has announced that it will reduce its bond-buying operations in 2024. This could be the outcome of inflation remaining above 2% for more than a year.