Yen trades mildly higher in otherwise quiet markets today. The Japanese Cabinet Office upgraded assessment of the economy for the first time in 21 months. The office said in its December report that "the Japanese economy is on a moderate recovery, while delayed improvement in part can be seen." That compared to prior description that the economy was in a moderate recovery "while weakness can be seen recently." In particular, exports and private consumptions outlook are more upbeat, showing "movements of picking up". Nonetheless, improvement in business investment "appears to be pausing", same as prior assessment. Also, the government cautioned that "attention should be given to the uncertainty in overseas economies and the effects of fluctuations in the financial and capital markets."
US equities surged yesterday on Santa rally, yet DJIA failed to take out 20k handle and closed at 19974.62, up 91.56 pts, or 0.46%. It was, nonetheless, a record high. Meanwhile, S&P 500 also gained 8.23pts, or 0.36%, to close at 2270.76. Treasury yields also closed higher with 10 year yield gained 0.026 to 2.568 but stayed in recently established range. Dollar stays firm and is trading higher against most major currencies for the week, except versus Yen as USD/JPY is stuck in consolidation. In other markets, Gold trading sin tight range between 1125/1145 as sideway consolidation extends. WTI crude oil is trading higher at 53.6 but is held below recent resistance at 54.51..
Dollar jumps today on safe haven flows on report of "probable terrorist attack" in Germany. In addition, markets were also nervous on the Russia/Turkey issue after Russian ambassador to Turkey was fatally shot. Meanwhile, the greenback is supported by Fed chair Janet Yellen's upbeat comments on the employment conditions. The dollar index surges to as high as 103.65 so far, breaking near term resistance at 103.56 to resume recent up trend. The index is on course to medium term projection target at 105.19. In the currency markets, Sterling is so far the weakest one for the week, followed closely by commodity currencies and Euro. Yen, despite today's weakness, is supported mildly by risk aversion with the Swiss Franc.
Yen weakens mildly today even though BoJ offered a brighter view on the economy after keeping monetary policies unchanged. Interest rate was held at -0.1% and the asset purchase program was also kept unchanged under the yield curve control framework. The vote on YCC was by 7-2 vote with policymakers Sato and Kiuchi opposing. The central bank noted in the statement that "Japan's economy continues to recover moderately as a trend", with consumption "moving on a firm note".Though, CPI is expected to be "slightly negative or about 0 percent for the time being. BoJ also noted that risks to the outlook including development in "emerging and commodity exporting economies", particularly China; developments in US; and Brexit. Separately, the Japanese government projected the real GDP to grow 1.5% in the year starting next April, revised up from prior projection of 1.2%. Nominal GDP growth is projected to be 2.5%, up from prior projection of 2.2%. CPI is forecast to be at 1.1%, down from prior estimate of 1.4%. Meanwhile, the initial budget for next fiscal year is JPY 97.5T, a mild 0.8% from the current year.
Euro stays soft against Dollar in spite of better than expected confidence data. German IFO business climate rose to 111.0 in December, up from 110.4, above expectation of 110.7. Current assessment gauge rose to 116.6, up from 115.6, above expectation of 115.9. Expectations gauge rose to 105.6, up from 105.5, above expectation of 105.5. Ifo president Clemens Fuest noted that "the German economy is in a festive mood."And, "assessments of the current business situation improved, reaching their highest level since February 2012. The business outlook for the first half of 2017 is also slightly more optimistic. The German economy is making a strong finish to the year."
Dollar surged broadly last week as Fed delivered the expected rate hike and painted a more hawkish rate outlook for 2017. Dollar index resumed the long term up trend and reached a 14 year high at 103.56 before closing at 102.95. In particular, EUR/USD took out 1.0461 key support level and reached the lowest level since 2002. Nonetheless, Yen and commodity currencies were hardest hit. Rally in Dollar was accompanied by extended rally in treasury yields as 10 year yield breached 2.6 handle before closing at 2.597. Gold suffered deeper selling on dollar trend to close at 1136.8 while WTI crude oil pared back much of the post OPEC gains to close at 51.90. However, stocks turned mixed despite Fed raising GDP projection for next year. DJIA struggled to power through 20000 handle and closed the week slightly higher at 19843.31. The markets may turn into consolidation mode as holidays approach. But strength in Dollar will likely carry on to early next year.