Dollar stumbles after brief jump versus yen

Madrid-Spain  (Dec 27)   After some modest gains over the Christmas holiday, the U.S. dollar slipped Friday, though it enjoyed a brief spike against the Japanese yen.

Against the Japanese yen /quotes/zigman/4868099/realtime/sampled USDJPY +0.05% , the dollar was unchanged from late Thursday’s ¥104.74. Earlier in the day, the dollar made a short-lived jump above the ¥105 handle, a level it hadn’t seen since 2008, after the release of a slate of Japanese data that included a slightly better-than-forecast gain in consumer inflation.

Japan’s core consumer price index — which excludes volatile fresh-food prices — rose by 1.2% from a year earlier, accelerating from a 0.9% increase in October and above a consensus estimate of 1.1%.

Aggressive monetary easing and fiscal stimulus, which followed the election of Shinzo Abe as Japan’s prime minister in December last year, have sent the yen sharply lower over the past 12 months.

“2013 was the worst year for the Japanese yen in more than a decade,” wrote BK Asset Management managing director Kathy Lien in a note Thursday. “Taking a look at the continuous rise in dollar-yen today and its proximity to ¥105, it is almost hard to believe that on Jan. 1, it was trading at ¥86.” 

Lien said the yen’s fate for 2014 would rest on the timing and size of any future stimulus. Japan is due to increase its national sales tax in April in a bid to shore up government finances. In addition, some economists expect fresh monetary easing from the Bank of Japan, an offsetting cut to other taxes, or possibly both.

“If they marry more [Bank of Japan] asset purchases with lower corporate taxes, dollar-yen could rise to fresh highs above ¥108, and possibly even ¥110,” Lien wrote.

But, she added, “if they forgo another round of stimulus next year, dollar-yen could be subject to a nasty correction ... because many investors are positioned for more easing.”

The European majors, meanwhile, traded higher Friday, with many of the region’s markets also trading higher as they reopened after the Christmas and Boxing Day breaks.

The euro  firmed to $1.3793 from $1.3693, while the British pound   advanced to $1.6486 from $1.6419.

The Australian dollar  rose to 89.25 U.S. cents from 88.89 U.S. cents late Thursday.