Yen soars after the BOJ hints at monetary policy change

Japanese economy

Japan's economy fell faster than first estimated in the third quarter. Final estimates released overnight showed that consumer and business spending both shrank, driving down third-quarter gross domestic product. The Japanese economy lost an annualised 2.9% in the third quarter. Markets had forecast a 2% decline. Capital expenditure fell 0.4%, and private consumption, which makes up more than half of the economy, fell 0.2% in the July–September quarter. Household spending weakness could remain a problem for months to come.

Nominal salaries rose 1.5%, but with an inflation rate of more than 3%, wage growth in real terms was wiped off. Inflation-adjusted real wages dropped 2.3% in October year-over-year (YoY), marking a 19th straight month of decline, according to the labour ministry. This has an impact on household spending, which saw a decrease of 2.5% in the same month, falling for eight months in a row, according to the internal affairs ministry.

Japanese Yen

As for the JPY, it jumped nearly 2% on Thursday after the Bank of Japan (BOJ) Governor said policy management would "become even more challenging from year-end and heading into next year" and flagged several options for what could come next. Kazuo Ueda told the Japanese parliament: "There are various options. But we have not yet made a decision on which interest rate to target once we end our negative interest rate policy." On Wednesday, Deputy Governor Ryozo Himino discussed what impact an exit from ultra-loose monetary policy could have on the economy. Now expectations are growing that the BOJ will soon signal a winding down of its ultra-low rates policy, and its Dec. 18–19 meeting could provide an opportunity.

US nonfarm payrolls

All eyes are turned towards the US, where non-farm payrolls for the month of November are due at 1.30 p.m.A rather important report, as for a few weeks now, the market is trying to figure out how soon the US Federal Reserve will start cutting rates. Currently, the CME Fedwatch tool forecasts a 90% chance of a Fed rate cut by May 2024, with a 60% possibility of a cut at the March meeting. A softer report is likely to raise the chances of an earlier rate cut. The market already had a few indications of the current state of employment in the US this week.

JOLTs job Openings

On Tuesday, job openings and labor turnover survey (JOLTs) job Openings decreased by 617,000 to 8.733 million, marking the lowest number of openings since March. 2021. On Wednesday, the Automatic Data Processing (ADP) survey revealed that private businesses in the US hired 103,000 workers in November, below a downwardly revised 106,000 in October and missing expectations of 130,000. The range of non farm payrolls (NFP) forecasts is rather wide. Expectations from the 74 economists polled by Reuters range from 100,000 to 275,000, setting the average estimate at 180,000.

It looks like an improvement on the October data, when 150,000 jobs were created, but November saw the return to work of about 30,000 workers after the United Auto Workers (UAW) strikes. The unemployment rate should remain at 3.9%, its highest level since January 2022. As for average hourly earnings, they are forecast to have risen by 0.3% compared to October and by 4% on an annual basis.

Oil prices

If oil price were rising on Friday, ahead of the US job report, fundamentals remain negative. The market is still concerned with global supply surpluses and weak Chinese demand. Oil analysts also await tonight's Baker Hughes data. Last week, the total rig count rose by three to 625. The number of producing oil rig remained at 500.