USD/JPY snaps three days of losses on widening Japanese current account deficit

The yen snapped three days of advances against the US dollar after a report by the Japanese Ministry of Finance showed the nations current account deficit widened to a record high in November.

Having reached a session high at 103.53 at 03:25 GMT, USD/JPY traded at 103.67 at 09:07 GMT, adding 0.66% for the day. Support was likely to be received at January 13th low, 102.86, also the pairs lowest since December 18th, while resistance was to be encountered at January 13th high, 104.03.

The Japanese Ministry of Finance reported on Tuesday that the nations current account deficit widened to a record 593 billion yen in November from a deficit of 128 billion yen in the previous month. The figure was well above analysts expectations of a deficit of 369 billion yen. Japan usually relies less on foreign capital as the country has an annual current account surplus since 1985.

Data from the same report showed Japanese money managers purchased a net 1.48 trillion yen of dollar bonds in November. Investors increased their dollar bonds holdings for a fifth straight month, as analysts expect Bank of Japan to expand its stimulus program further in the coming months, keeping domestic yields at the lowest level globally.

The difference in the yield between comparable US treasury 10-year notes and Japanese bonds with similar maturity is 2.18 percentage points and is getting closer to the widest gap of 2.30 percentage point, marked on December 24th.

The yen slid 18% last year on unprecedented monetary stimulus form the central bank of Japan.

Meanwhile, yesterday, Federal Reserve Bank President for Atlanta Dennis Lockhart said that weaker-than-projected payroll data in December should not discourage central bank’s policy makers from scaling back monthly monetary stimulus as long as the economy continues to gain momentum. Fed President for Philadelphia Charles Plosser and Fed President for Dallas Richard Fisher, voting members of the Federal Open Market Committee this year, are expected to take a statement later today.

The Census Bureau, part of the US Department of Commerce, will probably say that overall retail sales increased 0.1% in December on a monthly basis, after the indicator gained 0.7% in November, according to the median estimate of experts. Retail sales are considered as a crucial indicator regarding the trend in consumer spending and overall economic development in the United States. The official figures are scheduled for release at 13:30 GMT today and better than projected results would certainly provide support to US dollar’s demand.

Fed decided on December 18th to cut its monthly bond purchases by $10 billion to $75 billion, this month, citing improvements in the labor market. Fed Chairman Ben Bernanke said, regarding this decision, that Fed will probably continue to do a measured reduction in the pace of purchases at each meeting. According to a Bloomberg News survey of economists conducted on December 19, policy makers will cut Fed’s stimulus in $10 billion increments over the next seven committee meetings.

Elsewhere, AUD/USD touched a session low at 0.9020 at 2:00 GMT, after which consolidation followed at 0.9030, falling 0.27% for the day. Support was likely to be found at January 13th low, 0.8986, while resistance was to be encountered at January 13th high, also the pair’s highest point since December 11th, 0.9086.