For the S&P 500, there is a similar trend where the index on average gains 1.13% in December and then drops 1.21% in January. But the January drop is not as clear cut as the EURUSD figures, as 5 out of 11 observations were positive. The index is up 2.27% so far in December.

The transition from 2008 to 2009 was still marked by the "safe haven" trade as the dollar gained in January 2009 after a sharp drop in December 2008 and the S&P 500 dropped over 8% following a modest gain as investors still recovered from the height of the financial crisis. The question heading into 2010 is whether the dollar has completely broken its negative correlation with risk-seeking or not and given the volatility over the last two years, it will be difficult to gauge if we will once again see a slow start in equities coupled with a lower EURUSD. But the early US labor data release will be the first large data point to see where we will go in the new year.
BoJ Governor Shirakawa said the yen's rise was one factor behind Japan's poor economic performance since the crisis began.

The BoJ minutes from the Nov 19-20 meeting showed that the policy board were conscious of the dangers of the word "deflation", and several members urged caution when using it. "Weakness in demand" was seen as the cause for the "continued decline in prices", and the minutes stated that to improve the situation it would be necessary to create conditions whereby business fixed investment and private consumption could achieve self-sustaining growth. There was no mention of buying more JGBs as a possible remedy.

The minutes also noted that issuing conditions for most CP and corporate bonds remain favorable, despite the earlier announcement that the facility for outright buying of CP and corporate bonds would be closed down. Both the BoE and the Fed operate similar schemes and the BoJ's success in engineering a graceful exit from the market will come as a relief to policymakers elsewhere, demonstrating that it can be done without adversely affecting the market.

An article in the Nikkei reports that the budget for the fiscal year beginning April 2010, could be agreed as early as tomorrow. The article predicts that the general account budget will be Y92 tn, in line with previous expectations, with tax receipts forecasted at 37 tn. Previous reports suggest the difference will be filled by JGB issuance, and non-tax revenues expected to be in the region of Y10 tn. The arithmetic implies that fresh JGB issuance can therefore remain under the Y44 trn limit as has been previously promised by the government.

I anticipate JPY weakness in 2010 and we in Pro Traders Club will be trading this one. We will remain cautious that the markets may be hit with another wave of crisis, which would cause movements against our longer term view.
Source: UBS, Bloomberg