Price action in the European morning was choppy. Speculative account JPY demand waned early on in the European session after USD/JPY was unable to break through bid interest in the 118.00/10 region. Short covering activity and general profit taking was seen.
The move extended up to the 118.60/65 area as the JPY crosses also turned higher. USD/JPY buying was seen by a UK clearer, a Japanese securities house and a US name. The US name reportedly executed a decent size EUR/JPY buy order, taking the cross from 153.80 up to the 154.40 area. Price action is expected to remain choppy in the near-term, particularly with the near-term BOJ risk. The policy meeting starts on January 18th and many are now anticipating a 25bps hike amid recently hawkish BOJ rhetoric and press reports.
Carry trades are likely to be pressured as a consequence but long-term Japanese rates remain low, which should encourage JPY outflows. The return of Japanese retail investor demand will also influence price action this week, alleviating downside pressure in the JPY crosses and isolating USD/JPY from broader dollar moves.
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