USD/JPY moved to the highest level in four years

Market movers today

• Today’s most interesting event are the minutes from the FOMC meeting on 29 October, when the Fed turned more hawkish on the labour market saying that the underutilisation of labour resources was diminishing. Interestingly, hawks Charles Plosser and Richard Fisher did not dissent, even though the forward guidance was still in the statement. Fisher had previously refrained from dissenting, reasoning that the discussion was moving in his direction. It might suggest that the minutes will reflect a hawkish twist.

• Minutes from the latest UK MPC meeting are also due for release and are likely to be dovish. Data in the UK have generally been soft recently and the latest inflation report from Bank of England showed a risk that inflation could fall below 1% within six months. Focus will be on how the hawks see the latest development.

• In the US building permits and housing starts are released. Yesterday’s NAHB housing index revealed that it increased to 58 in November from 54 in October and was above 53 for the fourth month in a row. However, the trend in housing starts has been soft compared to the NAHB survey.

• In Denmark focus continues to be on the refinancing auctions. For more on Scandi markets see page 2.

Selected market news

Yesterday Japanese Prime Minister Shinzo Abe announced that the planned hike in the consumption tax to 10% from 8% for October 2015 will be postponed by 18 months to April 2017. In addition, he also dissolved the Lower House and called for an early election in December. The date for the election has not yet officially been announced but is expected to be 14 December.

Even though the announcements from Shinzo Abe was not a major surprise, USD/JPY moved to the highest level in four years, trading at 117.37 this morning. Adding to the pressure was news that BoJ governor Kuroda now has a clear majority behind the record easing presented a month ago, as the board today voted 8-1 compared to 5-4 a month ago. Note that Fitch has warned that the delay of the tax increase could be negative for Japan’s rating.

There was little news to report from the US but note that the US housing market continues to be in a good shape. The NAHB housing index rose to 58 in November from 54 in October (55 expected). This was the fourth month in a row with the NAHB above 53 and the index seems to have stabilised around the level after the Q1/Q2 dip. Note also that all subcomponents rose.

The positive sentiment in the European equity market (supported by the Japanese news and a long-awaited positive surprise in the ZEW indicator) was carried over to the US equity markets, where the three major indices all closed in green. There have only been small moves in US treasuries since the European close.