USD/JPY marks the longest streak of gains in 2014 on Fed stimulus outlook

The US dollar advanced against the yen for a third day, the longest streak this year, after a series of recent upbeat US data increased bets that Fed may continue to pare back its monthly monetary stimulus throughout 2014.

Having reached a session high at 104.92 at 03:30 GMT, USD/JPY traded at 104.75 at 09:18 GMT, adding 0.16% for the day. Support was likely to be received at January 15th low, 104.09, while resistance was to be met at January 10th high, 105.31.

The Bureau of Labor Statistics, part of the Department of Labor in the United States, reported on Wednesday that nation’s PPI surged to an annualized 1.2% in December, after the index reached 0.7% in November. Analysts had expected the PPI will rise to 1.1%. On a monthly basis, the PPI increased 0.4% in December, the largest increase since June and in line with analysts’ forecasts. The index dipped 0.1% in the preceding month.

A separate report showed that a gauge, which tracks manufacturing activity in the region of New York, soared to a reading of 12.1 in January, or the strongest level since May 2012, which was also more than three times larger than the initially projected reading. According to the median estimate of experts, the index should have increased to 3.5, after an upward revision to 2.22 in the previous month.

These data points provided support to greenback’s demand, as it favored the view that the Federal Reserve Bank may continue tapering during the year. Central bank’s policy makers said on December 18th that they will reduce monthly asset purchases to $75 billion from $85 billion, underscoring improving labor market conditions.

The bank will probably continue to pare stimulus by $10 billion at each policy meeting before exiting the program in December, according to a Bloomberg News survey of 41 economists, conducted on January 10th.

In addition, Fed President for Philadelphia Charles Plosser and Fed President for Dallas Richard Fisher, voting members of the Federal Open Market Committee this year, yesterday called for continued reduction of the Fed’s bond-buying program. Fisher said that he would strive to eliminate the program entirely “at the earliest practicable date”, while his colleague said he would prefer the stimulus program to be ended before late 2014.

“The growing consensus in markets is that the Fed won’t stop tapering and the dollar is likely to advance beyond recent highs before next Fed policy meeting,” said Yasuhiro Kaizaki, the vice president for global markets in New York at Sumitomo Mitsui Trust Bank Ltd., cited by Bloomberg.

The Federal Open Market Committee is scheduled to meet next on January 28-29.

Meanwhile, Bank of Japan Governor Haruhiko Kuroda stated today that the central bank will continue with its quantitative easing program, as long as the price target is stable and the program achieves its goals.

Bank of Japan has been purchasing more than 7 trillion JPY (68.4 billion USD) of government bonds each month in its struggle to achieve 2% inflation in two years since April 2013. There are growing concerns that BoJ will have to increase the scale of its asset-purchasing program this year, which puts heavy pressure on the yen.

Japan is in a process of recovery after a 15-year period of deflation.

Elsewhere, AUD/USD plummeted to a daily low at 0.8796 at 7:20 GMT, also the pair’s lowest point since August 25th 2010, after which consolidation followed at 0.8802, plunging 1.28% for the day. Support was likely to be found at August 25th 2010 low, 0.8772, while resistance was to be encountered at current session high, 0.8906.