Japan is called the Land of the Rising Sun for a reason. Not only does she gets up early, but she also leaves Christmas sooner. Such a busy calendar in the last five days of the year with significant events such as the minutes of the BoJ meeting, Haruhiko Kuroda's speech, industrial production, retail sales, and inflation is not found in any monetary unit G10, which allows the consideration of yen as the most interesting currency of the week. It is true that one should make a reservation since internal macroeconomic statistics are a factor of the second order in the course of its rate formation.
"Japanese" has been living a strange life for more than a year as it sharply reacts to the dynamics of the rates of the US debt market. This is promoted by the policy of targeting the yield curve, which became part of the practice of BoJ in late 2016. At the same time, the gradual increase in core inflation and the positive GDP data are interpreted in the context of maintaining confidence in the current leadership of the Central Bank. In February, the term of office of Haruhiko Kuroda expires and Reuters citing from an official source in the government claims that it will be prolonged. Indeed, what is the use of changing horses in midstream?
USD / JPY dynamics and US Treasury yields
Source: Trading Economics.
The U.S. Congress adoption of the draft tax reform and the signing of the document by Donald Trump before Christmas are "bearish" factors for U.S. bonds. Their sales lead to an increase in yield, which supports the "bulls" for USD / JPY pair. At the same time, North Korea's high-sounding statement that the next UN economic sanctions are tantamount to declaring war, which increases the demand for safe-haven assets. In my opinion, Pyongyang is unlikely to decide on new missile tests, because this will entail even greater restrictions on energy supplies to the disgraced country. Rapid de-escalation of the conflict will allow rates on American debts to continue the rally, which will put pressure on the yen.
Despite the fact that the "Japanese" is likely to continue to be under pressure in the short term, investments in the medium- and long-term horizon seems to be in good position. In fact that investors are already beginning to speculate, will BoJ normalize monetary policy in 2018? Will the BoJ follow the path of the ECB, the Bank of Canada and the Bank of England? On the contrary, will they openly declare that their roads diverged on the example of the RBA? De jure nothing is clear, and the de facto curtailment of QE is already in full swing. Instead of the planned £80 trillion increase in the monetary base, assets were acquired at just more than £60 trillion that puts next year's figure to be at risk to £44 trillion.
Haruhiko Kuroda has spoken twice about the dangers of negative rates for the banking system, and his words begin to be repeated by other members of the Governing Council. At the same time, hardly anyone will believe in the official normalization of BoJ's monetary policy since the basic inflation cannot grow by 1% or even by 2%.
Technically, the "bulls" of USD / JPY pair managed to gain a foothold above the important support at 113. In case of a successful update in the December maximum, the pattern AB = CD with a target at 114.75 will be triggered.
USD / JPY, daily chart
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