Outlook for USD/JPY cross during the upcoming week

US dollar climbed to highs unseen in six months against the Japanese yen on trading Friday, as expectations mounted that Japanese central bank may have to introduce additional stimulus measures in order to achieve its inflation target of 2% in two years time.

Having touched its highest point since May 23rd at 102.61 during Asian session on Friday, USD/JPY closed the day at 102.46, gaining 0.15% on a daily basis and also marked its fifth consecutive weekly advance, by 1.06%. Support was likely to be received at November 26th low, 101.92, while resistance was to be encountered at May 23rd high, 103.56.

According to a report, the annualized index of consumer prices in Japan reached 1.1% in October, confirming the rate shown a month ago and also meeting preliminary estimates.

The index of consumer prices, excluding prices of fresh food, the Bank of Japan’s gauge for its 2% inflation objective, rose to 0.9% in October on annual basis, in line with expectations, marking its fifth consecutive gain and also the fastest pace since November 2008, after in September it reached 0.7%.

These data points added to the case that Japan was in a process of recovery from the 15-year period of deflation. Bank of Japan has been purchasing more than 7 trillion JPY (68.4 billion USD) of government bonds each month in its struggle to achieve 2% inflation in two years since April.

However, on Wednesday the yen came under selling pressure after comments made by Bank of Japan board member Sayuri Shirai, who said that the central bank may consider additional measures in order to loosen its monetary policy in case of necessity. She also raised doubts over whether bank’s inflation objective can be reached due to downside risks to economic growth. According to Shirai, “there was a high degree of uncertainty regarding developments in overseas economies and households’ employment and income situation”.

Meanwhile, the greenback was continuously supported after also on Wednesday Thomson Reuters in cooperation with the University of Michigan reported that the final reading of the gauge of consumer sentiment in the United States climbed to 75.1 in November from a final value of 73.2 in October. Expectations pointed an increase to 73.1 in November compared to the preliminary reading of 72.0, published on November 8th, which was also the lowest point since December 2011.

Additional support for the US dollar has been provided by expectations that the Federal Reserve Bank will probably begin scaling back its monthly asset purchases at one of the next meetings on policy.

During the upcoming week investorsattention will be focused on the revised value of US Gross Domestic Product during the third quarter and on Novembers report regarding non-farm payrolls in the country, which could provide clues for central banks intentions in terms of monetary stimulus.

USD/JPY cross may be influenced by a number of reports, scheduled for publication during the week, as follows:

On Monday (December 2nd) Japan is expected to publish a report on capital spending during the third quarter of the year, one of the key indicators to drive economic growth.

At 13:30 GMT Federal Reserve Chairman Ben Bernanke will take a statement in Washington, while later in the day the Institute of Supply Management will release final data on manufacturing activity in the United States for November.

On Wednesday (December 4th) the ADP will report on employment situation in the United States, which is usually considered as a landmark for the non-farm payrolls figure, due out two days later. Later the same day the US will present a report on its trade balance for October. At 15:00 GMT the Institute of Supply Management will publish final data on activity in the services sector for November, accompanied by a separate report on new home sales for September and October.

On Thursday (December 5th) the United States is to release revised data regarding nations Gross Domestic Product in Q3, which is the widest indicator for economic activity, while the Department of Labor will publish its weekly report on initial jobless claims.

On Friday (December 6th) the United States will release the keenly anticipated data on non-farm payrolls and rate of unemployment for November, while later in the day the University of Michigan will announce the preliminary value of its index of consumer confidence for December.

Tuesday (December 3rd) has been skipped, as no relevant events are scheduled during the day.

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