Yen Selloff Continues On Deflation, Weak Economic Data

The Yen drops further today on expectations that the Japanese government would accelerate monetary easing to boost the economy. Consistent deflation pressure reinforced this view. The Japanese government released a series of economic data. Consumer price remained weak in the world's third largest economy. Core CPI dipped to -0.1% yoy in November from 0% a month ago. Leading indicator in Tokyo core CPI dropped -0.6% yoy in December, following a -0.5% decline in November. Industrial production plunged -1.7% mom in November from a 1.6% gain in October while retail sales climbed 1.3% yoy in November, compared with a -1.2% drop in October. The market had anticipated a 1.2% gain. Unemployment rate dipped -0.1% to 4.1% in November. This was better than market expectation of no change at 4.2%. Household spending climbed 0.2% yoy in November after a -0.1% drop in the prior month. However, the market had anticipated a 0.8% gain.

Technically, selling momentum in yen is still strong and we're not seeing any sign of topping yen crosses yet. USD/JPY took out 86 level easily as recent rally continues and is set to continue towards 90 psychological level and above. Again, this week's development posted strong sign of long term trend reversal and we'd see if USD/JPY buying would persist after hitting 90. EUR/JPY is trading comfortably above 114 for the moment and is still in progress for next projection level above 117. Based on broader outlook in yen in general, GBP/JPY would likely take out 140 psychological level on next rise but we'd remain cautious there. AUD/JPY is also pressing key long term resistance level of 90 and sustained break there would pave the way to 100 and above.

U.S. Focus
Elsewhere, the dollar is mixed against other major currencies on fiscal cliff uncertainties. President Obama is set to meet with Republicans House Speaker Boehner and Senate Minority Leader McConnell, as well as Democrats Senate Majority Leader Reid and House Minority Leader Pelosi today. McConnell said that we'll see what the president has to propose and hopefully there is still time for an agreement of some kind that saves the taxpayers from a wholly preventable economic crisis. Boehner is expected to continue to stress that the House has already passed legislation to avert the entire fiscal cliff and now the Senate must act. Reid complained that we have nobody to work with, to compromise and I don’t know time-wise how it can happen now. House has called for an unusual session on Sunday evening but there is no idea on what actions they would take yet. US Treasurer Geithner said that U.S. will reach the $16.4T debt ceiling on December 31 and extraordinary measures would be taken to finance around $200b deficits in 2013, which is just enough for around two months.

Looking ahead, Chicago PMI would be released later today and is expected to improve to 51.2 in December. Pending home sales is expected to drop -0.3% mom in November. Also, natural gas storage and crude oil inventories would be released.