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FXstreet.com (London) - USD/JPY returned to its bearish trend as monetary policy expectations drive the two currencies. The pair is currently trading at JPY104.4350.

Bank of Japan inflation-targeting expansion

Data released overnight confirmed that its aggressive monetary expansion remains in full swing. The Bank of Japan data showed a 46.6 percent expansion of the monetary base year-on-year in December, bringing the monetary base up to a record JPY193.5 trillion. The data release once again brought to the fore the contrasting monetary policy expectations between the BoJ and the US Federal Reserve, snapping USD/JPY out of a short-term decline.

Janet Yellen yesterday won the US Senate vote to succeed current Fed chairman Ben Bernanke when his term expires on 31 January. Though very much a dove in the same mould as her predecessor, she is expected to oversee a winding down of the Fed’s current quantitative easing programme. On 18 December, the Fed moved to taper its monthly asset purchase programme by USD10bn, leaving it at USD75bn a month. It is expected that the Fed will continue to taper at successive meetings, ending this incarnation of QE by the fourth quarter.

USD/JPY recoups short-term declines

USD/JPY swung between JPY104.2345 on opening to JPY104.440 before retracing to a session low of JPY104.2075. The pair was then pushed to a high of JPY104.2075, resuming some of the bullishness that last week pushed the pair to a five-year high at JPY105.4415. The pair is currently trading at JPY104.4350, up 0.23 percent on a short period of consolidation.
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