USD/JPY has posted losses in the Wednesday session. In the North American session, the pair is trading just above the 113 line. On the release front, Japanese PPI was unchanged at 2.1%, matching the forecast. Japanese Tertiary Activity declined 0.1%, its second decline in three months. In the US, Federal Reserve Chair Janet Yellen will testify before the House Financial Services Committee. On Thursday, the US releases PPI and unemployment claims. As well, Janet Yellen will testify before the Senate Banking Committee.
All eyes are on Janet Yellen, who testifies before a congressional committee on Wednesday. Yellen’s prepared remarks were released ahead of her testimony, and there were no surprises. Yellen said that the Fed is on track to raise rates and begin reducing its balance sheet before the end of the year. The markets are skeptical about another rate hike, despite the Fed optimism. This is largely due to weak inflation numbers. Although the labor market remains close to capacity, this has not translated into stronger wage growth, a key driver of inflation. The CME Group has pegged a December rate increase at just 47%, while other forecasts are pointing to odds as low as 40%. Unless growth and inflation numbers move higher, the markets are likely to remain lukewarm about the likelihood of a third rate hike in 2017.
Japan’s economy has improved in 2017, buoyed by a stronger global economy. This has translated into increased demand for Japanese goods and has boosted the manufacturing and export sectors. The Tankan Manufacturing Index jumped to 17 in the first quarter, its strongest showing since 2014. On Tuesday, Preliminary Machine Tool Orders improved in June to 31.1%, up from 24.4% a month earlier. We’ll get a look at Preliminary Industrial Production on Friday. The indicator recorded a strong gain of 4.0% in April, but the markets are braced for a sharp downturn in June, with an estimate of -3.3%.
