USD/JPY touches 3-week lows on Fed stimulus outlook

The yen touched highs unseen in three weeks against the US dollar, after worse-than-expected employment data released on Friday continued to pressure the greenback by lowering bets the Federal Reserve will further cut its monetary stimulus at FOMC’s upcoming meeting.

Having hit a session low at 103.26 at 02:15 GMT, USD/JPY traded at 103.37 at 09:51 GMT, losing 0.77% for the day. Support was likely to be received at December 18th low, 102.64, while resistance was to be encountered at January 10th high, 105.31.

The greenback continued to be pressured after worse-than-expected employment data curbed fears the Federal Reserve might reduce further its monthly bond purchases at FOMC’s upcoming meeting. The Department of Labor reported on Friday that US employers added 74 000 jobs in December, the least since January 2011, sharply underperforming expectations for a moderate retreat in job creation to 196 000 payrolls. November’s reading received an upward revision to 241 000 from initially estimated at 203 000.

On the other hand, the rate of unemployment in the country dropped significantly, reaching 6.7% in December from 7.0% in the preceding month, marking the lowest rate since October 2008. However, this came as a result of a larger percentage of US citizens leaving nation’s work force. Preliminary estimates pointed that US unemployment rate will remain unchanged in December.

Fed decided on December 18th to cut its monthly bond purchases by $10 billion to $75 billion, this month, citing improvements in the labor market. Fed Chairman Ben Bernanke said, regarding this decision, that Fed will probably continue to do a measured reduction in the pace of purchases at each meeting. The Fed monetary stimulus program tends to devalue the US dollar. According to a Bloomberg News survey of economists conducted on December 19, policy makers will cut Fed’s stimulus in $10 billion increments over the next seven committee meetings.

Investors awaited the release of a report on the US Federal Budget Balance for December, which may reveal a surplus of $44.3 billion, following the deficit of $135.23 billion in the preceding month. Atlanta Fed President Dennis Lockhart is also expected to speak later today.

Meanwhile, Japanese markets were closed due to a national holiday.

Last week BoJ released a report on the nation’s monetary base. According to the data, the Japanese monetary base, which measures the supply of money by the central bank, surged by almost 47% in December from a year earlier, reaching a record of 193.5 trillion yen or $1.85 trillion. The Japanese central bank changed its policy target from interest rates to monetary base in April and is attempting to raise it to 270 trillion yen by the end of the year from December 2012.

The yen slid 18% last year on unprecedented monetary stimulus form the central bank of Japan. The currency still remains under pressure amid speculation the BoJ will need to expand its stimulus program further in the coming months, if it wants to achieve the target of 2% inflation by late 2015.

Elsewhere, AUD/USD climbed to a session high at 0.9042 at 4:45 GMT, also the pair’s highest point since December 12th, after which consolidation followed at 0.9032, gaining 0.40% for the day. Support was likely to be received at January 10th low, 0.8876, while resistance was to be met at December 12th high, 0.9082.