The Japanese yen is showing little movement in the Wednesday session. In North American trade, USD/JPY is trading at 112.43, down 0.01% on the day. On the release front, Japanese Flash Manufacturing PMI strengthened for a third straight month, and the reading of 53.1 beat the estimate of 52.6 points. In the U.S, New Home Sales dropped sharply to 553 thousand, well short of the estimate of 627 thousand. Later in the day, Japan releases SPPI, which is expected tick lower to 1.2%. On Thursday, the U.S releases core durable goods orders and unemployment claims, and Japan publishes Tokyo Core CPI.
The trade war between the U.S and China remains a serious concern for Japan, whose economy is heavily dependent on exports. A Japanese government report released on Tuesday sounded pessimistic about the export sector. The October report lowered its forecast for exports, due to the ongoing trade war. The report said that exports were flat, but also noted that the Japanese economy continued to recover at a moderate pace. President Trump has spared Japan’s auto sector from tariffs for now, but Japan could be in serious trouble if the trade war escalates. China is Japan’s largest trading partner and the downturn in China’s growth in the third quarter is not good news for Japan.
With the Federal Reserve widely expected to raise rates in December, what can we expect in 2019? Many economists expect three rate hikes next year, and this was reinforced by Dallas Federal Reserve Bank President Robert Kaplan on Wednesday. Kaplan said he expects rates to rise into a range of 2.5% to 2.75%, or more likely, into a range of 2.75% to 3.00%. Kaplan noted that his estimate of a “neutral rate’ is slightly below 3% – anything above this level would move rates into a “restrictive’ stance, which could hamper economic growth and push inflation lower. The stock markets received a jolt this week as Chinese growth slipped to a 10-year low in the third quarter, and further weak numbers out of China could affect the U.S economy and cause the Fed to scale back its rate hike plans for 2019.
