A December to forget for the yen

As the global markets reopen have the New Years’ Day, Japanese markets are closed for a holiday. It’s a very light economic calendar today, with no Japanese releases and only one US tier event – unemployment claims. In the European session, USD/JPY is currently trading at 157.12, down 0.12% on the day. We can expect a quiet day for the yen.

December was absolutely dismal for the yen, which lost which plunged 11% against the US dollar. On Tuesday, the yen dropped to 158.07 per dollar, its lowest level since early July. Investors are nervous that Tokyo could intervene in the currency markets in order to stem the yen’s sharp drop. Is the 160 level the red line in the sand for Japanese authorities?

Earlier in the week, Japan’s Manufacturing PMI was revised to 49.6, up from 49.5 in the initial estimate and above the November reading of 49.0. This marked the sixth straight deceleration in manufacturing activity but was the highest level since September. Manufacturers’ sentiment was relatively strong, with optimism for improvement in the semiconductor and auto markets, which have been hit hard over the past several months.

Is BoJ planning a January rate hike?

The Bank of Japan doesn’t typically telegraph its intentions to the market. One reason is the central bank doesn’t want to tip its hand to speculators, who are looking to cash in on the yen’s sharp swings. The BoJ summary of opinions from the December meeting provide some insights, as the summary indicated that some Bank policymakers are leaning toward a rate hike in the near future.

The summary showed that there is a split among the nine-member board over rate policy. The hawkish members argued that conditions are falling into place as inflation is steady and the yen is sliding lower. The doves countered that wage growth is lagging behind inflation. Governor Ueda could be the decisive vote and investors will be following his every word right up to the January 24 meeting.

USD/JPY Technical

• There is resistance at 157.38 and 158.09
• USD/JPY tested support at 156.70 earlier. Below, there is support at 155.59

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