Japanese CPI Hits 5-Year High

Middling data on US GDP and initial jobless claims couldn't stifle a rebound in risk sentiment and USD/JPY and EUR/USD finally broke down. The Australian dollar was the top performer Thursday while the safe-haven Swiss franc lagged. Early in Asia, Japan's unemployment rate tumbled and inflation beat expectations. The 5-year high figure of 1.3% y/y boosts both of our Premium longs in USDJPY. USDCAD, EURUSD, AUDPY, NZDUSD and gold shorts remain in progress in our latest Premium Insights.

The first reading on fourth quarter US GDP matched expectations at 3.2% but the details raised questions. Consumption fell short of estimates and instead inventory building added a boost. High inventories could lead to a payback with slower growth in Q1 and some economists lowered expectations.

Employment also remains a spot of contention as jobless claims at 348K were worse than the 330K consensus. The Fed continues to blame poor weather for the weak Dec non-farm payrolls report but stubbornly high jobless claims hint at other problems.

In any case, the data was good enough to sustain a relief rally in stock markets and USD/JPY. Another positive factor was a pledge from Russian leaders to defend the ruble. The weakness of RUB in 2014 is on par with declines in ZAR and TRY and the Russian announcement calmed worries about more emerging market pain.

In Japan, Abe and Kuroda likely smiled after seeing employment and CPI data. The jobless rate fell to 3.7% compared to 3.9% expected and CPI rose to a 5-year high of 1.6% y/y beating the 1.5% reading expected.

The risk for USD/JPY traders is that better data could lead the BOJ or MOF to scale back stimulus plans, although at the moment that's a low percentage risk. The key zone of support for USD/JPY remains 101.77/102.00 while a break above 103.00/50 would nullify the latest round of risk aversion.

Friday is the final day of trading for January so beware of month-end flow driven trade.