There were several developments on the day after Christmas, while many markets remained closed and investors sidelined. One of the most important developments was the euro’s complete recovery from the flash crash of nearly three percent on Christmas day in the North American time zone.  

Recall that the euro finished last week near $1.1860, having recovered from a dip a little through $1.1820 on news that parties in Catalonia that favor independence secured a majority of seats in the regional parliament. Bloomberg records a low before 8 am ET just below $1.1560. However, dealers marked the euro higher, and today, the single currency has been in a narrow range, mostly between $1.1850 and $1.1875. 

The dollar was confined to an even tighter range against the yen. The JPY113.20 to JPY113.35 bracketed the greenback. Japan continues to report favorable economic data. Japan reported an unexpected dip in the unemployment rate to 2.7% from 2.8%. Japan’s labor market is firm, but what has been missing is the knock-on lift to consumption.  

More important than the confirmation of the strength of the labor market, Japan reported that overall household spending jumped 1.7% in November from a year ago, which is more than three-times better than the Bloomberg consensus forecast. It is the strongest rise since June, which itself was the best since August 2015. In addition to robust exports, which is supporting industrial production and business investment, household consumption is helping lift the economy and prices.  

Japan reported that headline CPI rose to 0.6% in November over the past year from a 0.2% rate in October. The core rate, which excludes fresh food prices, rose 0.9% from a year ago. Although measured quite a bit differently, Japan’s core inflation rate and the ECB’s are advancing at the same pace. Minutes from the recent BOJ meeting will be released this week. Although it is not clear if Kuroda will be given a second term (a two-term governor has not been seen in 50 years in Japan), the BOJ is seen a lagging behind other central banks and the economic data to maximize the opportunity to break the back of deflation.