The Bank of Japan (BoJ) decided on surprise measures to qualitatively supplement its QQE without further quantitative easing last week. Governor Kuroda at the post-meeting press conference described the decision as a supplementary adjustment rather than additional easing. Yet, market reactions seem to reflect confusion and concerns about the BoJ's policy communication, which may continue to weigh on USDJPY in the near term as post-Fed gains are being erased. 

"We believe these measures are unlikely to generate depreciation pressure for the JPY even though it may support the durability of the QQE somewhat in the future. As such, we expect USDJPY to continue to trade in the recent range around 123 going into 2016", notes Barclays.

A tug of war between the USD and risk sentiments will likely remain the main driver of USDJPY in the weeks ahead. While the USD appreciation had been putting upward pressure on the pair, concerns on the emerging markets and deterioration in risk sentiment resulted in multilateral appreciation of the JPY. 

Beyond these external factors, Japan's inflation and activity data will be in focus, including 1) November CPI (25 December), 2) November household survey (25 December), and 3) November IP (December 28). First, December core CPI is expected to rise +0.1% y/y (consensus: 0.0%), or the first positive reading in five months. Second, the November household survey is expected to show that real household spending dropped -2.2% y/y (consensus: -2.2%), marking the third consecutive month of decline. Third, November IP is likely to have decreased -0.3% m/m after two months of increases.