USD/JPY Fundamental Daily Forecast – Strong Buying as Safe-Haven Yen Falls Out of Favor

At the start of a normally quiet week in terms of economic reports, the Bank of Japan (BOJ) issued its Summary of Opinions and the government released its latest data on Retail Sales on Monday. This was followed by Tuesday’s reports on the Unemployment Rate and Preliminary Industrial Production.

The news had little impact on the performance of the Dollar/Yen with most investors focused on risk sentiment and the potential impact of the Omicron coronavirus variant on the global economic recovery.

The rally by the Forex pair on Monday strongly suggests investors are betting Omicron worries will ease. This comes after market strategists remained positive on the overall equity outlook amid a surge in COVID cases. They based this assessment on new studies suggesting the omicron strain has a lower risk of hospitalization than other COVID variants.

On Monday, the USD/JPY settled at 114.888, up 0.490 or +0.43%. The Invesco CurrencyShares Japanese Yen Trust ETF (FXY) finished at $81.65, down $0.36 or -0.44%.

Japan Central Bankers Debated Rising Inflationary Pressure at December Meeting – Summary

Bank of Japan (BOJ) policymakers discussed the recent rising inflationary pressures that could force them to alter their view the country remained vulnerable to the risk of deflation, a summary of opinions at their December meeting showed on Monday.

While consumer inflation remains stuck around zero, prices may gradually accelerate reflecting rising energy costs, one of the BOJ’s nine board members was quoted as saying.

“As wholesale prices rise at a record pace reflecting higher commodity costs, consumer inflation is gradually facing upward pressure,” according to another opinion in the summary.

Some board members also pointed to changes in companies’ inflation outlook and price-setting behavior, with more firms passing on higher costs to consumers, the summary showed.

“In the next quarterly report due in January, it’s necessary to examine whether the current assessment – that risks to prices are skewed to the downside – remains appropriate,” one member was quoted as saying at the December 16-17 policy meeting.

The opinions highlight a growing view within the BOJ board that rising global inflation is starting to spread in Japan, and could lead to an upgrade in the BOJ’s price forecasts at next month’s rate review.

Japan’s November Retail Sales Rise but Omicron Risks Loom

Japan’s retail sales rose faster than expected in November, thanks to decreasing COVID-19 cases in the month, which have encouraged shoppers to ramp up spending on goods and services.

Retail sales gained 1.9% in November from a year earlier, government data showed on Monday, faster than economists’ median forecast for a 1.7% gain and the 0.9% advance in October.

Japan November Factory Output Rises 7.2% Month/Month

Japan’s factory output surged 7.2% in November, government data showed on Tuesday, beating a median market forecast for a 4.8% rise.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to increase 1.6% in December and 5.0% in January, the data showed.

Japan’s Jobless Rate Rises to 2.8% in November

Japan’s jobless rate rose to 2.8% in November, while the availability of jobs matched that of the previous month, government data showed on Tuesday.

The seasonally adjusted unemployment rate compared with 2.7% in October and a median forecast of 2.7% in a Reuters poll of economists.