Thanks to this morning’s U.S. jobless claims report, which was the best in 5 years, USD/JPY appears to gunning for 90, again. While the data shows that the economy and labor market are improving, the impact on currencies has been limited because the correlation between jobless claims and non-farm payrolls have weakened over the past years. Investors are not convinced that fewer firings will translate into more hiring. Jobless claims dropped to 330K from 335K in the week ending on January 19th. Continuing claims also fell to 3.157 million from 3.228 million. Skepticism about the accuracy of the data limited the positive impact on USD/JPY. For the second week in a row, the Labor Department credited the improvement to seasonal factors. A spokesman pointed out that the data is following patterns seen in prior years where claims dropped significantly for a few consecutive weeks in early January only to rebound at the end of the month. More than 365k people also lost their extended unemployment benefits but that too could be distorted by seasonal factors. So while this month’s jobless claims report was a killer, it is hard to believe that this improvement will stick especially with the increase in the payroll tax this month. Nonetheless non-farm payrolls are due for release next week and based on the jobless claims report and other measures, we expect another month of strong job growth.

Meanwhile USD/JPY and the other Japanese Yen crosses are on a tear this morning courtesy of comments from the country’s Economics Minister. While we believed that the pullback in USD/JPY was temporary, we have to admit that we didn’t expect the rebound to happen so quickly and aggressively – but that’s the power of official rhetoric. Overnight, Deputy Economic Finance Minister Nishimura said he would have no problem with USD/JPY at 100. Economy Minister Amari also said he expects Japan to perform bold monetary easing. After the confusion created by conflicting comments at the beginning of the month, it is becoming clear that the government’s tolerance of a weak Yen is higher than they had initially let on. Combined with their commitment to aggressive monetary easing, it should be a matter of time before USD/JPY makes a new 5 year high.