Will Santa Deliver A Stronger JPY Before Christmas?

The index that measures the strength of the JPY against a basket of other currencies (JXY) is down approximately 9.5% year-to-date.

At the time of writing, the index is valued at 87.97, after spending the past month climbing up from its yearly low of 86.60. Not only was 86.60 a yearly low, but also a four and a half year low (last seen in March 2017) for the JXY.

Will Santa deliver a stronger JPY before Christmas?
Two important economic reports are set to influence the strength of the JPY and subsequently the JXY over this coming week. The first, released on Wednesday, is the Monetary Policy Minutes from the Bank of Japan (BoJ), covering its meeting last week. The board members’ opinions will be noted against the Bank’s decision to rein in some of its pandemic-related spending but remain ultra-accommodative in every other sense.

In particular, it will be interesting to see how the board members talk about the possibility of inflation in the country accelerating to 0.4%, which has been forecast. The second important economic report this week, Japan’s Inflation YoY to November, is scheduled to be confirmed just after midday Friday.

An inflation rate of 0.4% is hardly likely to set off alarm bells with BoJ officials and instigate a more hawkish position. But some acknowledgement should be necessary.

Any deviation from the forecast could relay into some JPY trading opportunities.

GBPJPY or USDJPY?
The upside to the JPY in relation to the GBP could be a little more potent than against the USD. Case in point, after the Bank of England, surprised (half) the market last week Friday with a rate hike, the GBPJPY has since given up its immediately preceding 1.3% appreciation.

The predicted choppy week leading up to Christmas might also provide some motivation to buy into the JPY against the GBP, but unlikely to do so against the USD, as the risk-off environment should spread amongst both these safe havens currencies.