POLITICAL RISK: US Daily Brief 18 Dec-25

"*BOE'S PILL: THERE IS EASING IN THE LABOR MARKET
*BOE'S PILL: LOOKING FORWARD, INFLATION IS SET TO COME DOWN
*BOE'S PILL: UNDERLYING DYNAMICS NOT AS STRONG AS HEADLINE CPI" Bloomberg

• These comments not unexpected despite Pill being one of the hawkish camp on the MPC. Until recently he's often been saying the direction for Bank Rate should be lower, but that the risks suggested a slower than quarterly pace of cuts.
• Nothing in these comments suggests he will vote for a December cut, he's still not needed to if Bailey supports a cut anyway. And by the time that he is comfortable risks aren't to the upside, the wider MPC may have already cut rates, changing the equation again as we approach neutral.

• Amid the uncertainty surrounding US data releases and through which lens any surprises may be interpreted, short-term technical levels for USDJPY appear well defined, with the topside focus on 156.75, the Jan 23 high and the 20-day EMA providing support at 153.49.
• The domestic backdrop continues to prove challenging for the yen, with Q3 GDP data disappointing and the escalation in Japan-China tensions raising concerns. Furthermore, overnight reports suggesting a group of lawmakers in Japan’s ruling Liberal Democratic Party have urged PM Takaichi to craft an extra budget much larger than what’s been indicated thus far as she puts the finishing touches on her economic package.
• Combined with the resilience to broader developments for risk, the likes of EURJPY, AUDJPY and CHFJPY remain standout candidates to further test the MOF’s resolve. EURJPY in particular is continuing to grind to fresh record highs, printing a 180.10 high this morning and trading at levels well above the previous set of intervention episodes.
• MUFG believe that their view of a strengthening Euro over the coming year and the yen continuing to trade at “very, very weak levels historically”, points to more upside risk for EURJPY, “even at levels above 180”.
• Targets for the cross rely on technical projections at this point, with 180.37, 181.01 and 181.70 the next levels of note based on the Jul 31 - Sep 29 - Oct 2 price swing.

• USDJPY has spent the majority of Tuesday’s session consolidating the break above 155.00, with the Japanese yen proving immune to the recent weakness for major equity benchmarks and the more forceful verbal warnings on one-sided adjustments for the currency.
• As a reminder, Japan’s Finance Minister strengthened her rhetoric on the yen’s slide. “I’m seeing extremely one-sided and rapid movements,” Katayama told reporters on Tuesday, adding she is “deeply concerned about the situation.”
• Additionally, BOJ Governor Ueda has given little away concerning the bank’s hiking outlook, reiterating the focus on a smooth landing towards the inflation target to PM Takaichi. Ueda also noted that the two discussed FX but wouldn't comment on specifics, instead reaffirming that it is desirable for FX to move in a stable manner, reflecting fundamentals.
• ING’s view remains that the MoF prefers to intervene in the FX market after a USD-negative event (such as a soft jobs/inflation print), like it did in July 2024. Also, any line in the sand may be closer to 160, and they think further upside pressure in the coming days is very possible.