A quiet FX market on 26.12.2017

Hello all, I hope Santa brought you everything your hearts desired.

Quiet and rangy is the word with USD not doing to bad, GBP and EUR smalls offered, JPY in the middle of the pack. Find a  snapshot of the FX market at 13.15 gmt at the bottom of the post .
Beware it’s a Xmas, yearend market, low liquidity, low vol unless an order hits the market which could lead to some abrupt moves , especially over option expiries and fixings .
We had a slew of Japanese data out last night who fail to move the JPY at all despite a slowly rising inflation, the best labour report in 25 years and better spending numbers.
The JPY’s been kept in check by Kuroda, BOJ minutes, higher defense spending numbers and Abe’s continued pressure on companies to raise rates .
The main US events will be the S&P Case-Shiller Home Price index , expected at 6.3% vs 6.2% last, the Richmond and Dallas Manufacturing indices, expected at respectively 22(30 prior) and 20( 19.4 prior). We also have 4W, 3M, 6M and 2Y US bills and note auctions from 16:30 gmt onwards.If anything world shocking happens I’ll be back with an update.
Here’s the recap of the numbers and comments out of Japan last night. In my opinion JPY should if not strengthen a lot, remain underpinned on dips on the back of continuously improving data:

    -EX FRESH FOOD (CORE) Y/Y: 0.9% (highest since March 2015*) V 0.8%E
    -CPI Ex Fresh Food, Energy (core-core) Y/Y: 0.3% v 0.3%e
  • Japan Dec Tokyo CPI Y/Y: 1.0% v 0.6%e; (Tokyo accounts for approx 30% of Japan’s economic activity )
    -Ex-Fresh Food (Core) Y/Y: 0.8% (highest since March 2015*) v 0.7%e
    – Ex Fresh Food, Energy Y/Y: 0.4% v 0.3%e
  • Japan MoF FY18/19 defense spending ¥5.1911T, record high and 6th consecutive rise
  • JAPAN NOV JOBLESS RATE: 2.7% V 2.8%E (lowest level since Nov 1993)
    – Job-to-Applicant ratio: 1.56 v 1.56e
  • Bank of Japan (BOJ) Oct 30-31 Policy Meeting Minutes: BOJ must persistently pursue powerful monetary easing, additional easing measures should not be implemented now Most members:
    – Momentum toward price target maintained
    – Private consumption was likely to follow a moderate increasing trend
    – Upward pressure on prices stemming from rise in companies’ costs have been increasing steadily
    – Economy was expanding moderately, with a virtuous cycle from income to spending operating
    – Overseas economies were likely to continue growing at a moderate pace, as advanced economies kept growing steadily and a recovery in emerging economies took hold on the back of the steady growth in advanced economies as well as the effects of policy measures taken by emerging economies
    – Financial conditions in Japan were highly accommodative. They shared the view that, under Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, firms’ funding costs had been hovering at extremely low levels and financial institutions’ lending attitudes as perceived by both large and small firms continued to be proactive.
    Few members: – US and EU central banks had been proceeding with policy normalization with great care, which had been contributing to market stability
    – Taking extreme monetary easing steps only to achieve price goal could prevent monetary accommodation from producing intended policy effects
    One member: – Market speculation that BOJ would accelerate ETF buying toward year end was not appropriate
    – Likely that business fixed investment in overseas economies, which had been restrained for the past few years, would gather pace as uncertainty regarding economic developments abated, and therefore the probability that overseas economies would continue to grow through 2018 was rising.
    – Developments in the Purchasing Managers’ Index (PMI) for manufacturing activity for the euro area and the ifo Business Climate Index for Germany suggested a considerable improvement in business sentiment in Europe
    – ECB decision to reduce the pace of its net asset purchases had had a limited impact on the market so far, and that this was largely attributable to market participants’ favorable outlook on the economy – China’s initiatives to reduce excess inventories and production capacity over the past few years consequently had exerted a positive impact on Asian economies, including Japan’s, through both exports and imports.
    – While pointing to an overheating of the real estate market and subsequent adjustments as risks associated with the Chinese economy, expressed the view that the market had been relatively calm so far and currently was expected to make a soft landing
    . – Economy was in the process of shifting from one in which growth was led by external demand to one with more self-sustaining growth that was accompanied by an improvement in domestic demand. – If firms’ internal reserves were accumulated excessively, the economy as a whole would have excess savings and the natural rate of interest could decline. This member continued that it was therefore important that the allocation of firms’ funds to savings, investment, and employees be well balanced
    – One member said effects, side-effects of BoJ’s ETF buying should be examined from every angle. – One member said aiming to lower super-long JGB yields would negatively impact public sentiment
  • Japan Fin Min Aso: Deflation was caused by inappropriate response of Govt and BOJ
    – Monetary easing steps to beat deflation led to a weaker yen
    – Making small but steady progress in beating deflation
  • Bank of Japan (BOJ) Exec Dir Miyanoya: prolonged monetary easing is weighing heavily on bank profits, many regional banks could be hurt in the long-run from intensifying competition that forces lenders to cut rates banks should not expect profits to return to where they were before the implementation of ultra-easy policy.regional banks need to find new revenue streams, with the economy in good shape now was the time to act. M&A as an option to improve profitability.
  • Japan PM Abe: Economy has been the top priority for the past 5 years; urges companies to raise wages more than 3% next spring
    – Economic conditions are good for small business as well
    – Economy is broadening, spreading to small firms and non-manufacturers
    – Positive economic cycle is clearly kicking in
    – Want companies to completely end deflationary mindset in 2018
  • Bank of Japan (BOJ) Gov Kuroda: Reiterates BOJ will patiently maintain powerful monetary easing;
    -Japan no longer in deflation as defined by sustained price declines
    – Inflation remains weak despite economy’s expansion and tightening job market
    – Wage growth pace more sluggish than previous recovery
    – 2% inflation target still distant
    – Economic conditions do support wage worth
    – Japan’s economy is virtually at full employment
    – Global economy entering new phase, moderate growth likely to continue
    – Long way to go to achieve the price stability target
    – Firms still cautious about raising wages
    – Conditions for wages to rise falling into place as economy recovers
    – Don’t see excessive risk taking in markets but must watch financial moves carefully
    – No overheating in banking industry or on assets
    – Many firms concerned price rises mean fewer customers

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