Global factor to continue to drive USDJPY

Since the Bank of Japan (BoJ) unexpectedly supplemented its QQE program on 18 December meeting, USDJPY has been trading heavily at 120-122. In addition to the disappointment on the BoJ, a lack of upward momentum in the USD and weaker risk sentiment weighed on the pair during the year-end sessions.

Global factors should continue to drive USDJPY into the first week of 2016. Major US economic data, including December US nonfarm payrolls and ISM, if solid, may provide some support for the USD and help USDJPY recover from the recent rangelows. According to the IMM data, speculative (non-commercial) short JPY positions have already been largely squared off, suggesting some scope for yen selling. On the other hand, the flight-to-quality bid for the JPY may intensify due to risk-off moves potentially caused by a further decline in commodity prices or negative headlines from EM.

In terms of data releases in Japan, the November "Maikin" Labor Survey (Friday) will be watched. Wages per worker are expected to have increased +0.7% y/y, and scheduled pay (base-pay component, which rose +0.1% in October) will also be important to determine the underlying wage trends. Wage dynamics will remain a key factor for the BoJ policy outlook, given the emphasis placed by Governor Kuroda on the upcoming shunto (annual spring wage negotiation).