Yen boosted by trade balance but edgy on BoJ’s policy outlook

Japanese current account surplus: The major transformation in macroeconomic fundamentals of yen is the current account balance improvement.

It reached ¥ 13.1trn in the first nine months of the year, significantly increasing from that in 2014, when annual surplus was merely ¥2.6 trln (0.5% of GDP).

The current account surplus was reduced dramatically during 2014 due to the swift weakening in the balance of trade that began from 2011.

Japan's trade balance went into a deficit in 2011 and sustained to deteriorate for following years, reaching ¥ 10.4 trln in key influences accountable for the growing trade deficit include the surge in energy prices and the increase in imports from Asia.

We could foresee Yen's continued gains against dollar in medium term perspectives (let's say next 1-2 months or so) even though some minor upswings in short run cannot ruled out but not beyond 118.854 from current levels considering global economic slowdown and mixed bag of US markets.

Forecasters are losing faith in JPY weakness and for the first time in at least five years, consensus forecasts are not calling USD/JPY higher, with both Bloomberg's and Reuters' analyst surveys now showing a profile essentially flat at spot.

On the contrary, BoJ policy action subject of heightened speculation after PM Abe aide comments and currency jawboning. 1W implied vol up to 12.67 and set for further gains (next BoJ meeting 28/29 Jan). Support 115.98. His assistant views at JPY rebound must be stopped, mustn't underestimate risk of more gains, BoJ should act at its January 28-29 meeting, yen should keep gaining until then and after the event it would get a more clarity about long term directions.