USD/JPY sets to snap nine weeks of advances

The Japanese yen advanced against the US dollar on Friday and was poised for the first 5-day drop in 10 weeks on bets that its recent decline might have been excessive.

USD/JPY touched a session low at 104.08 at 05:00 GMT,after which the pair consolidated at 104.36, declining 0.42% for the day. Support was likely to be found at December 23rd low, 103.78, while resistance was to be met at January 2nd high, 105.44, also the pairs highest since October 2008. USD/JPY headed for the first five-day decline in 10 weeks, declining 0.75% so far this week.

Bank of Japan policymakers kept their pledge to increase the monetary base by an annual 60 trillion to 70 trillion JPY (665 billion USD) at the policy meeting in December, as the bank strives to achieve its target of a 2% inflation rate. The minutes of BoJ’s November policy meeting, released on December 20th, revealed that not all board members were confident that nation’s economic growth was on a long-term upward trend.

The yen slid 18% last year on unprecedented monetary stimulus form the central bank of Japan. The currency remained 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.

“The market, from a positioning perspective, is very short of yen and vulnerable to thin liquidity, the short-term risk for dollar-yen is for further profit-taking” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong, cited by Bloomberg.

Meanwhile, the greenback remained supported after the Federal Reserve Bank said on December 18th that it plans to reduce its monthly bond purchases in January to $75 billion from $85 billion, while also reinforcing its position that the benchmark interest rate will remain low for an extended period of time. According to the median estimate of economists surveyed by Bloomberg on December 19th, the Federal Reserve may reduce the purchases in $10 billion increments over the next seven meetings, before ending the program, which tends to devalue the US currency, in December 2014.

The US Department of Labor reported yesterday that the number of people, who filed for unemployment assistance during the week ended December 28th, dropped to 339 000 from the upwardly revised 341 000 in the preceding week. Analysts had projected that the number of initial jobless claims will increase to 342 000.

Also, according to data by the Institute for Supply Management (ISM), US companies operating in the sector of manufacturing increased their activity at a weaker, but still steady rate in December compared to November. The corresponding index, gauging the performance of manufacturing sector in the country, came in at a value of 57.0 in December, down from 57.3 in the previous month, which was also the highest level of the index in 2.5 years. Analysts had forecast that the manufacturing PMI will demonstrate a larger drop in December, to 56.9. Values above the key level of 50.0 are indicative of expansion in the sector.

Fed Chairman Ben Bernanke is scheduled to take a statement later today at an economics conference in Philadelphia, alongside Philadelphia Fed President Charles Plosser.

Elsewhere, having reached a session high at 1.6464 at 08:10 GMT, GBP/USD traded little changed at 1.6462 by 10:02 GMT, gaining 0.05% for the day. Support was likely to be received at January 2nd low, 1.6414, while resistance was to be encountered at January 2nd high, 1.6604, also the pair’s highest since August 2011.