USD/JPY has posted gains for a third straight day on Tuesday. In North American trade, the pair is trading at 108.76, down 0.36% on the day. On the release front, Japanese Household Spending posted a strong gain of 0.8%, well above the forecast of -0.2%. The Japanese unemployment rate remained unchanged at 2.8%, matching the forecast. In the US, CB Consumer Confidence improved to 122.9, beating the estimate of 120.9 points. Later in the day, Japan releases Retail Sales, which is expected to slow to 1.1%. On Wednesday, there are two key events in the US – ADP Nonfarm Payrolls and Preliminary GDP.
North Korea is back in the news again, as the rogue country fired a missile over Japanese territory on Tuesday. Japan and the US have sharply condemned the missile launch, and with tensions once again climbing in the Korean peninsula, nervous investors have moved a way from stocks in favor of the safe-haven Japanese yen. If the crisis continues, the yen could make further gains against the greenback.
At the Jackson Hole meeting last week, Yellen did not discuss interest rate policy, choosing instead to emphasize that the financial regulations put in place since the financial crisis in 2008 should not be undermined. Her message appeared aim at Donald Trump, who has expressed his intention to relax banking and financial regulations which he has argued are hampering business. The markets remain skeptical about a third and final rate hike this year, as the odds of an increase in December have been falling – currently, the odds a December hike are at 35%, down from 42% a month ago.
Like other Western economies, Japan remains gripped with low inflation. This has resulted in the Bank of Japan keeping in place its ultra-accommodative monetary policy. Unlike the US and Europe, however, the BoJ has given no indications of tightening policy anytime soon, insisting that that inflation must first rise closer to its target of 2%. The economy is headed in right direction, as GDP has expanded for six consecutive quarters. In the second quarter, GDP impressed with a gain of 1.0%, well above the forecast of 0.6%. Still, with inflation nowhere near the BoJ’s target, the bank’s radical stimulus program is likely to remain in place for the foreseeable future.
