USD/JPY has ticked lower in the Tuesday session. In North American trade, the pair is trading at 110.70, down 0.02% on the day. On the release Japan’s current surplus jumped to JPY 1.52 trillion, beating the estimate of JPY of 1.51 trillion. Japanese Economy Watchers Sentiment dipped to 49.7, short of the estimate of 50.1 points. In the US, there was positive news on the employment front, as JOLTS Jobs Openings jumped to 6.16 million, well above the estimate of 5.74 million. On Wednesday, the US releases two employment indicators – Preliminary Nonfarm Productivity and US Preliminary Unit Labor Costs.
The Bank of Japan has stubbornly stuck to its inflation target of 2 percent, and said that it won’t ease up on its huge stimulus package before inflation moves higher. However, with inflation mired at just 0.4%, there are growing calls for the BoJ to change its tune. On Tuesday, former BOJ Deputy Governor Kazumasa Iwata warned that the bank’s inflation target is unrealistic, adding that even a 1% target could be overly optimistic. There are concerns that the ultra-accommodative policy is hurting the Japanese financial market, and Iwata suggested that the bank taper its bond-buying scheme from JPY 60 billion to 40 billion per year.
Investor appetite for the US dollar has softened, as political risk has been growing and there are doubts if the Fed will raise rates before 2018. President Trump’s administration seems rudderless and Trump’s inability to pass healthcare legislation has increased political risk in the US. As well, the Federal Reserve’s monetary policy remains unclear. Earlier this year the Fed strongly hinted that it planned to raise rates three times in 2017, but has only pressed the rate trigger twice. In June, Fed Chair Janet Yellen shrugged off low inflation, saying that it was due to "transient" factors, leaving the impression that the Fed still planned one final hike. However, inflation has not improved and the Fed has changed its tune. Last week, St. Louis Federal Reserve President James Bullard said he opposed further Fed hikes, warning that another hike would actually delay inflation from hitting the Fed’s target of 2%. The markets have become more skeptical about a rate hike in December, as the odds have fallen to 33%, compared to 43% a week ago.
