USD/JPY rebounds from five-year highs following Tankan reports

The Japanese yen rebounded from five-year lows against the US dollar on Monday, following a BoJ survey, which showed major manufacturers are most bullish since 2007.

USD/JPY traded at 103.05 at 09:15 GMT, down 0.16% for the day. Support was likely to be received at December 12th low, 102.47, while resistance was to be encountered at December 13th high, 103.92, also the pairs highest level since October 6th 2008.

On Monday, the BoJ published a report, based on a survey, which showed that large-manufacturers in the fourth quarter were most bullish since December 2007. The poll for the months ended December revealed that sentiment among large-manufacturers increased to +16 from +12 in the preceding survey for the third quarter. The analysts forecast projected a reading of +15, while a higher value of +19 was registered in December 2007.

The large non-manufacturers index increased to +20 in the fourth quarter, the highest reading since September 2007 and up from +14 in the three months ended September. Analysts had projected a reading of +16.

On Thursday the US Department of Commerce reported that retail sales in the country rose considerably in November, as US consumers purchased automobiles and a range of other goods. Retail sales rose 0.7% last month, outstripping analysts’ projections of a 0.6% gain, while October’s sales result has been revised up to a 0.6% increase from a 0.4% increase previously. The overall indicator was mainly influenced by a 1.8% climb in sales at automobile and parts dealers, which offset a 1.1% decline in fuel prices.

Retail sales, which exclude volatile components such as automobile sales, rose 0.4% in November from an upwardly revised 0.5% a month ago, exceeding expectations of a 0.2% advance.

Core retail sales, which exclude automobiles, food services, gasoline and building materials and correspond more closely to the consumer spending component of nation’s GDP increased 0.5% in November, after advancing 0.7% in October.

These data points added to expectations that the Federal Reserve Bank may consider a small reduction of scale of its monthly asset purchases at the upcoming policy meeting on December 17th-18th, which tends to devalue the US dollar.

According to 34% of economists, participated in a Bloomberg survey on December 6th, the FOMC may begin to scale back its 85-billion-USD monthly asset purchases at the committee’s policy meeting this week rather than wait until January or March.

Investors also awaited the release of US report on industrial production for November, accompanied by the results of a survey encompassing manufacturers in the region of New York for December, while Markit Economics was to publish the preliminary value of its manufacturing PMI for December. All the reports are due later on trading Monday.

Meanwhile, on Friday, according to Bloomberg Bond Trader Prices, the 10-year Treasury yield was little changed at 2.88% from Thursday, when it rose two basis points, while the premium yield over equivalent Japanese government bonds was 2.18 percentage points, close to the 2-1/2-year high of 2.24 percentage points touched on December 5th.

In a Financial times’ interview, BoJ Governor Haruhiko Kuroda said that the central bank will strive to keep ultra-easy monetary policy even beyond the time-frame of two years.

Japan is in a process of recovery after 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. There are growing concerns that BoJ will have to increase the scale of its asset-purchasing program in the coming year, which puts heavy pressure on the yen. Next policy meeting by the BoJ will be held on December 19th-20th.

The Japanese currency is the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen had weakened 15% so far this year, while the greenback had appreciated 4%.

Elsewhere, EUR/USD hit a session high at 1.3763 at 09:18 GMT up 0.16% for the day, following the release of Euro zone manufacturing PMI, which touched highs unseen in 32 months. Support was likely to be received at December 13th low, 1.3710, while resistance was to be encountered at December 12th high, 1.3803.