The USD/JPY recently declined after Japan’s industrial production data pleased yen buyers while the US dollar bears the burden of recent risk-on mood. Preliminary Industrial Production shrank 3.4% YoY versus -10.0% forecast and -3.0% prior. Though, the monthly data disappoints by flashing 0.0% figures compared to 4.0% market consensus and previous readouts.

Further, Bank of Japan’s (BOJ) Summary of Opinions for the December meeting exert additional downside pressure on the greenback. The statement suggests that the policymakers are up for further easy money. BOJ must examine extending deadline, possibly expand content, of fund-aid program timing with a compilation of govt’s new stimulus package. It should, however, be noted that the statement suggesting the”Watching the risk of abrupt moves in the FX market,” indicates the BOJ’s readiness to restrict further strengthening of the Japanese yen (JPY).

Official data released on Monday showed factory output was flat in November from the previous month, as declining output of cars and plastic products offset strength in production and general machinery output. The flat reading was much slower than the prior month’s final 4.0% gain, and below the median market forecast of a 1.2% rise in a poll of economists.

“The recovery pace is slowing a little more than expected,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute. Tsunoda still expected the positive trend in output to continue largely because of underlying strength in Japan’s exports, which are heavily focused on Asia. “Demand for high-tech and IT-related products is currently expanding, so I think that will provide support,” he said. Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expected output to decline 1.1% in December and see a sharp 7.1% rebound in January.

On the other hand, market sentiment improved after US President Donald Trump tweeted that he has good news on the coronavirus (COVID-19) aid package. Trump signed into law the $2.3 trillion pandemic aid and spending package, officials said on Sunday night, averting a partial federal government shutdown. Earlier he had cryptically tweeted, “Good news on Covid Relief Bill. Information to follow!” He had previously demanded an increase in stimulus checks for struggling Americans to $2,000 from $600.

Some analysts worry that new virus infections around the world, especially in Europe and the United States, may prevent demand for Japan’s manufactured goods to grow further as corporate and consumer activity take a hit.

USD/JPY 4 Hour Chart:

Support: 103.47 (S1), 103.40 (S2), 103.31 (S3).

Resistance: 103.63 (R1), 103.72 (R2), 103.79 (R3).

Amidst all the catalysts favoring yen against greenback, we expect a bearish trend for USD/JPY.