The Japanese yen is gaining momentum on the back of mixed economic data and potential policy changes by the BoJ. The market is closely watching central bank decisions and data releases in both Japan and the US for further direction.

Key Points:

• Yen gains on retail sales beat, industrial production disappoints.
• BoJ summary highlights divided opinions on policy shift.
• Fed rate cuts eyed, but timing remains uncertain.

Yen Strengthens Despite Mixed Data:

The Japanese yen has extended its winning streak, pushing USD/JPY below 141 as mixed economic data and ongoing speculation about the Bank of Japan’s (BoJ) policy fueled the rally.

• Retail sales surged 5.3% year-over-year in November, exceeding expectations and suggesting resilience in the consumer sector.
• However, industrial production fell 0.9% month-over-month, highlighting ongoing challenges in the manufacturing industry.

BoJ Policy Debate Intensifies:

The BoJ released a summary of opinions from its December meeting, revealing a split among board members regarding the timing of a policy shift away from ultra-loose measures.

• One member argued that the “timing of normalizing policy was getting closer,” while another advocated for waiting until after wage talks next spring.
• Governor Ueda emphasized the need for sustained wage growth before raising rates, pointing to temporary cost-push factors behind current inflation.

Market Bets on April Shift, But January Surprise Possible:

The mixed data and BoJ summary reinforce expectations of a policy shift, but the timing remains uncertain.

• Markets anticipate a move by April, with wage negotiations in March playing a crucial role in assessing inflation sustainability.
• However, a surprise move at the January meeting cannot be ruled out, as the BoJ has a history of unexpected policy changes.

Fed Rate Cut Talk Heats Up, But Timing Unclear:

The US Federal Reserve has signaled a shift towards rate cuts in 2024, further boosting the yen against the dollar.

• Fed Chair Powell projected three rate cuts, while markets anticipate a more aggressive six-hike cycle starting in March.
• However, some Fed members warn against overly optimistic market expectations, suggesting the timing and pace of cuts remain uncertain.

Technical Outlook:

USD/JPY has broken below support at 141.38 and is testing further support at 140.78. A potential drop to 140.01 is possible. Resistance levels lie at 142.08 and 142.61.