Yen steady after core inflation as expected

The dust is beginning to settle after the Bank of Japan’s stunning move earlier this week.  At its policy meeting, the BoJ widened the yield curve on long-term bonds from 0.25% to 0.50%. The move blindsided the markets, which had anticipated a ho-hum BoJ meeting with no changes in policy. The announcement sent USD/JPY tumbling by over 500 points and has raised speculation that the BOJ could make further changes before BOJ Governor Kuroda wraps up his term in April.

The yen has since settled down and the markets are keeping an eye on other releases. National Core CPI for November delivered as expected, as the 3.7% gain matched the consensus and ticked up from 3.6% in October. The BoJ also released meeting minutes, but these were from the October meeting. Some members voiced concern about the strong descent of the yen, saying it caused uncertainty and had many negative effects on the economy. It should be kept in mind that the yen was much weaker in October when these comments were made, but it does indicate that the yen’s strength is of concern to the BOJ.

Another interesting comment was that the Bank needed to assess how the markets would react if the BoJ decided to exit its easy policy. After this week’s yield curve move, this point takes on added urgency, with rising speculation that the BoJ could tighten policy in the near term.

Markets eye PCE Core Index

In the US, there are a host of events today. The markets will be paying particular attention to the PCE Core Index, the Fed’s preferred interest indicator. The index is expected to slow to 4.6% y/y in November, down from 5.0% a month earlier. Personal Spending and Personal Income are also expected to soften. The US also releases durable goods, UoM consumer confidence and UoM inflation expectations. Investors will be paying close attention to the inflation and inflation expectation releases.

The US posted strong numbers on Thursday. Unemployment claims rose to 216,000, up from 214,000, but investors liked that the reading was lower than the consensus of 222,000. As well, GDP for Q3 was revised upwards to 3.2%, up from 2.9% in the initial estimate. The solid is another indication that the economy is well-positioned to handle additional rate hikes, which the Fed has promised as it battles inflation.

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USD/JPY Technical

•  USD/JPY is putting pressure on resistance at 132.83. Above, there is resistance at 134.12
• There is support at 131.13 and 130.15

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