USD/JPY: Dollar continues to be on the back foot

  • USD plunged on BOJ´s speculation about Kuroda.
  • USD is also under pressure on concerns of higher US fiscal deficits.

USDJPY is now trading around 107.70 in late New York session, tumbled by almost 0.90% on BOJ´s Kuroda reappointment speculation coupled with concern of higher US fiscal deficit & inflation, thanks to a huge fiscal spending plan by Trump.

USD came under sudden pressure today late in the Asian session. Although the exact reason is not clear till now, it may be a combination of several factors relating to Kuroda (BOJ Gov) reappointment, talk of back door tapering by BOJ (Bank of Japan), leverage cap on FX positions by Japan and a high probable appointment of a hawkish person as next Dy BOJ Gov.

Although, Japanese PM (Abe) has not confirmed Kuroda´s reappointment, as par some market buzz, Kuroda may be reappointed for an eventual change in policy guidance by BOJ in the days ahead. Kuroda may help the market for an orderly movement, considering his experience in jawboning and controlling the market.

On the other side, market may be also concerned that, if Kuroda is not reappointed, then the next BOJ Gov would be not so much dovish like Kuroda. Thus this BOJ´s Gov issue may be a double whammy for the USD now.

Also, fresh North Korean saber rattling by director of US national intelligence may have boosted the risk-aversion move today. Thus safe haven assets like Gold and Yen is also on upbeat mood. US national intelligence director today said that “time coming ever closer on North Korea”.

Limited progress in NAFTA talks may be also negative for USD on perception of trade protectionism. Higher US household debts in Q4 (+1.5%) at $13.15 tln released today may be also not good for USD.

Some prepared comments by Fed´s Gov Powell today in his formal swearing-in ceremony were also on the negative side for USD. Powell emphasized that the Fed will remain alert to any financial stability risk and is in the process of gradually normalizing rates subject to a full recovery in the labour market and a return to the 2% inflation target.

In comparison, Fed’s Mester sounded quite hawkish today, advocating for further rate hikes in 2018-19 as inflation is expected to gradually rise to 2% over the next 1-2 years.

Mester further emphasized that “US economic fundamentals are very strong, economy working through latest turmoil, latest market moves haven't curbed risk-taking, spending and trading has been relatively orderly, tax cuts adding to growth and could be upside risk”.

All eyes may be now on US core CPI tomorrow (Wednesday), which is slated to come around 1.7% vs 1.8% prior. Also US core retail sales will be there

In the morning Asian session tomorrow, all eyes will be on Japanese Q4 GDP, which is slated to come around 0.9% vs 2.5% (prior). An upbeat Japanese GDP will be also bad for USD.

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