USD/JPY surrenders BoJ-inspired gains, slides to 128.00 amid broad-based USD weakness

• USD/JPY retreats over 350 pips from the daily low amid aggressive intraday USD selling.
• The USD adds to its losses following the release of weaker-than-expected US macro data.
• A positive risk tone might undermine the safe-haven JPY and help limit losses for the pair.

The USD/JPY pair surrenders its intraday gains that followed the Bank of Japan policy decision and retreats to the lower end of its daily range during the early North American session. The pair is currently placed around the 128.00 mark and has now moved well within the striking distance of its lowest level since May 2022 touched earlier this week.

As investors digest the BoJ's dovish stance, the emergence of aggressive US Dollar selling turns out to be a key factor leading to the USD/JPY pair's sharp intraday fall of over 350 pips. The USD adds to its heavy losses and drops to a seven-month low following the release of softer-than-expected US macro data, which boosted bets for smaller rate hikes by the Federal Reserve.

Data published by the US Bureau of Labor Statistics showed that the Producer Price Index (PPI) declined to the 6.2% YoY rate in December. This was well below consensus estimates for a fall to 6.8% from November's downwardly revised reading of 7.3%. The data further points to easing inflationary pressure, which could allow the Fed to slow the pace of its policy tightening.

The US monthly Retail Sales also fell short of market expectations and declined by 1.1% MoM in December, missing estimates for a 0.8% fall. Excluding autos, core retail sales also contracted by 1.1% during the reported month as compared to a 0.4% drop anticipated, suggesting a slowdown in consumer demand and reaffirming expectations that the Fed will soften its hawkish stance.

This, in turn, leads to a further decline in the US Treasury bond yields, which continues to weigh on the greenback. That said, a generally positive tone around the equity markets seems to undermine the safe-haven Japanese Yen. This might hold back traders from placing fresh bearish bets around the USD/JPY pair and help limit the downside, at least for the time being.

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