Yen Down Trend Continues On BoJ Speculations

Yen selloff remains the main theme in quiet holiday trading today. Inflation data released from Japan today showed national CPI core accelerated to 0.9% yoy in October, inline with expectation. Tokyo CPI core accelerated to 0.6% yoy in November, above expectation of 0.4% yoy. Manufacturing PMI rose to 55.1 in November. However, other economic data were disappointing. Household spending rose 0.9% yoy in October versus expectation of 1.0%. Industrial production rose 0.5% mom, versus expectation of 2.0%. Unemployment rate was unchanged at 4.0% versus expectation of a drop to 3.9%. The GBP/JPY remains the biggest gainer this month and this week, continuing to make multi-year high and is heading to long term fibonacci level at 168.11. The EUR/JPY also head closer to 140 psychological level. And, the USD/JPY also strengthens but is kept below this year's high of 103.73.

The continuous weakness is yen is based on risk appetite as well as BoJ expectation. While the Abenomics are helping Japan escape from deflation, there are concerns that the country will fall short of the 2% inflation target by the end of 2014. And, there are speculations that BoJ would adopt another round of stimulus soon to follow up on April's unprecedented program. Also, prime minister Abe would probably need to push more fiscal stimulus as so far, the benefits of the economy from higher inflation is not strong enough to indicate sustainable growth.

BoJ governor Kuroda urged the government to work on fiscal overhaul. And, he emphasized, "it is important for the government to firmly retain the trust of the markets over its medium- and longer-term fiscal overhaul efforts if we are to avoid evoking concerns over monetization." Economy minister Amari acknowledged that acceleration in CPI to a five year high showed clear progress. But finance minister Aso was cautious on one month's data. Earlier this week, BoJ board member Shirai warned there is "still a way to go" to the 2% target and there were more downside risks to the economy for now.

Elsewhere, New Zealand building permits dropped -0.6% mom in October. UK Gfk consumer sentiment dropped to -12 in November. European data will be the main focus today with German retail sales, Eurozone unemployment and CPI, Swiss KOF and UK mortgage approvals featured. Canada will release September GDP.