USD/JPY continues to have a quiet week. In the North American session, the pair is trading at 109.54, down 0.07% on the day. On the release front, U.S. unemployment claims dropped to 199 thousand, beating expectations. Japan releases Tokyo Core CPI, which is expected to post a gain of 0.9% for a second straight month.

The U.S. labor market continues to impress. Unemployment claims dropped sharply, from 213 thousand to 199 thousand. This was the first time that the indicator dropped below the 200-thousand level since 1969. The four-week average, which is less volatile, dropped by 5.5 thousand to 215,000. The strong figures indicate that the employment picture remains bright, despite the ongoing U.S. government shutdown, which has resulted in the layoff of some 800,000 government workers.

The BoJ wrapped up its monthly policy meeting, with BoJ Governor Kuroda sending out mixed messages. Kuroda warned of the risks of increased protectionism and softer global demand, but also said that he expected the economy to continue to grow at a modest pace. At the policy meeting, the bank maintained its huge stimulus program and also lowered its inflation forecast, a strong signal that the bank has no intention of reducing stimulus or raising rates anytime soon. The slowdown in China is undoubtedly raising alarm bells at the BoJ, but Governor Kuroda put on a brave face, saying that he hoped the U.S-China trade conflict would be resolved soon. However, If the U.S-China trade spat is not resolved soon, Japan could tip into recession. The export sector is hurting, as December exports fell to their lowest level in two years.

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As for the yen, it posted gains of 3.4% in December, when risk appetite plunged and world stock markets fell sharply. The currency started January with gains, but these evaporated as risk appetite has improved. The lukewarm Japanese economy isn’t all that enticing for investors, but the safe-haven yen could once again become attractive if economic conditions worsen, such as a deterioration in the U.S-China trade war or softer data out of China.


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