USD/JPY trades in proximity to 5-year highs after Fed’s tapering decision

The Japanese yen declined against the US dollar following the release of the Feds tapering decision on Wednesday.

Having reached a session high at 104.34 at 13:20 GMT, USD/JPY traded at 104.14 at 15:10 GMT, losing 0.14% for the day. Support was likely to be received at December 18th low, 102.64, while resistance was to be encountered at December 18th high, 104.36, also the pairs highest since October 2008.

The Federal Reserve announced a plan to reduce the pace of its monthly asset purchases to $75 billion from $85 billion, on its two-day policy meeting, concluded on Wednesday.

The announcement supported the greenback as the Fed stimulus program tended to devalue the US currency.

“Reflecting cumulative progress and an improved outlook for the job market, the committee decided today to modestly reduce the monthly pace at which it is adding to the longer-term securities on its balance sheet,” Bernanke said at a press conference in Washington after a meeting of the Federal Open Market Committee, cited by Bloomberg.

Fed Chairman Ben Bernanke announced that the central bank purchases will be divided between $40 billion in Treasuries and $35 billion in mortgage bonds starting from the beginning of 2014.

The Federal Reserve Bank decided also to keep its benchmark interest range unchanged at 0.00% to 0.25%. The central bank reassured that the benchmark rate will likely stay low, saying in its statement that “it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5% percent, especially if projected inflation continues to run below the Committee’s 2% longer-run goal”.

The greenback was pressured after a report by the US Department of Labor revealed the number of people, who filed for unemployment benefits for the week ended December 14th, increased to 379 000 from 369 000 the previous week. Analysts projected that the jobless claims will lower to 332 000.

Yesterday, official data showed the number of building permits issues in the U.S. fell less-than-expected in November, remaining near the highest level since January 2008, while at the same time US housing starts rose at a faster-than-expected pace in November.

In a report the Census Bureau said that the number of building permits issued last month declined by 3.1% to a seasonally adjusted 1.01 million from 1.04 million units in the previous month. Analysts projected a 4.7% decline to 0.99 million units in November.

The report revealed that US housing starts rose by 22.7% in November, hitting a seasonally adjusted 1.1 million from October’s 0.89 million. Analysts’ forecast pointed an increase to 0.95 million.

Meanwhile, 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. BoJ started its two-day policy meeting today.

On Wednesday, the Japanese Ministry of Finance reported that the country’s trade deficit in November reached 1.35 trillion yen or ($13.1 billion) on a seasonally-adjusted basis, compared with the 1.2 trillion median analysts’ forecast. In October the trade deficit was downwardly revised from 1.09 trillion yen to 1.06 trillion yen. According to released data imports increased 21.1% from a year ago, while exports rose 18.4%.

“The yen will remain weak, the trade deficits are big enough to keep the currency from strengthening.”, said Daisuke Karakama, a Tokyo-based market economist at Mizuho Bank Ltd., cited by Bloomberg.