The Japanese yen has ticked higher in the Thursday session. In North American trade, USD/JPY is trading at 112.95, down 0.11% on the day. On the release front, Japanese National Core CPI posted a gain of 1.0%, unchanged from the previous release. This matched the forecast. Later in the day, Japan releases Flash Manufacturing PMI, which is expected to tick lower to 53.0 points. Markets and banks in the U.S. are closed for the Thanksgiving holiday and there are no U.S events on the schedule.
Japanese National Core CPI, which removes volatile food prices, is a reliable gauge of consumer inflation. The reading of 1.0% (on an annualized basis) pointed to continued weakness in inflation, which remains far below the Bank of Japan target of around 2 percent. Inflation could face further headwinds, as the slowdown in China and the ongoing global trade war takes a bite out of the country’s export sector. As well, lower oil prices could also hamper inflation. There is little reason to expect that inflation will gather any upward momentum and some analysts are forecasting that Core CPI will fall below the 1 percent level.
Investors will be catching their breath on the Thanksgiving holiday, after a tumultuous week on the stock markets. The meltdown on Tuesday has raised questions about the Federal Reserve’s monetary policy. The markets had expected the Fed to raise rates up to four times in 2019, but with more signs that the U.S. economy could slow in 2019, policymakers may ease up on the pace of rate hikes. The Federal Reserve remains on track to gradually raise rates in 2019, but the pace could be slower than anticipated just a few weeks ago. There’s no denying that the U.S economy is currently in great shape, with unemployment at historically low levels and the $1.5 trillion tax cut package boosting economic growth. However, the rosy picture could change next year. The U.S-China trade war is expected to take a bite out of U.S growth, and the stimulus from the tax cut will fade over time. Economic growth has been slowing, with third-quarter growth expected at 2.7%, down from 3.5% in the second quarter. A rate increase in December remains a strong possibility, with the odds of a rate hike standing at 76%.
