Yen Weakens to 5-Year Low

  USD/JPY  has climbed to a five-year high today (December 13th), as traders increasingly anticipate a taper of the Federal Reserve's quantitative easing (QE) programme following the meeting of the Federal Open Market Committee (FOMC) next week.

  The Japanese currency is on course to record a seventh successive weekly decline against the US dollar ahead of policy updates from both nations' central banks next week.

While the Fed is widely expected to begin reducing its asset purchases, the Bank of Japan (BoJ) is reportedly preparing to step up its own stimulus.

  Prime Minister Shinzo Abe has announced intentions to hike the Japanese sales tax from April, which policymakers have expressed concerns will threaten the progress being made towards achieving sustained inflation in the country.

  After 15 years of near-constant deflation, Mr Abe was elected amid a pledge to secure two percent inflation within two years. To this end, the BoJ launched a radical monetary stimulus package in April.

However, the expected divergence in monetary policy between the BoJ and the Fed has caused the yen to weaken significantly against the dollar.

  Following a series of strong data releases, culminating in the November non-farm payrolls report showing American employers added more than 200,000 new jobs for the second successive month.

  In addition, the US unemployment rate declined to seven percent, down from 7.3 percent in October.

Fed chairman Ben Bernanke has previously linked the future of the bank's QE programme to the country's labour market, stating the stimulus will likely be ended completely when unemployment falls to 6.5 percent.

  Despite the fact yesterday's figures showed the number of Americans making initial claims for unemployment benefits rose sharply last week, it is expected the FOMC will take sufficient encouragement from recent economic reports to introduce a taper ahead of the end of Mr Bernanke's second term at the bank. He leaves this post on January 31st 2014 and current deputy chair Janet Yellen has been nominated to replace him.

Source: fx360.com