USD/JPY has shown little movement at the start of the week. In Monday’s North American session, the pair is trading at 112.71, up 0.06% on the day. In the US, banks are closed for Columbus Day, and there are no US events on the schedule. Later in the day, Japan releases Current Account, with the surplus expected to narrow to JPY 1.98 trillion.
US employment data was a mix on Friday. Non Farm Employment change surprised with a decline of 33 thousand, compared to the estimate of a gain of 85 thousand. The weak reading didn’t cause any alarm in the markets, but rather underscored the severe impact of Hurricanes Harvey and Irma, which hit the US in late August and early September. The two storms caused $150-200 billion in damage and also took a toll on the employment market, although the labor market is expected to rebound as the recovery effort intensifies. On a brighter note, wage growth accelerated to 0.5%, above the estimate of 0.3%. This reading is pointing to stronger inflationary pressure, although we’ll have to wait for additional inflation indicators, such as CPI, to gauge inflation is moving higher. There was more good news from September job data, as the unemployment rate fell from to 4.2% in September, down from 4.4% a month earlier.
Early in the year, the Federal Reserve broadly hinted that it would raise rates three or four times in 2017, and a third hike in December now appears very likely. Fed futures are currently priced in at 91%, which is remarkable, considering that only a month ago, the odds of a December increase were just 31 percent. A strong US economy has helped raise the odds, but the primary reason for the huge shift in market sentiment can be attributed to the Fed policymakers that have come out in support of a rate hike, notably Fed Chair Janet Yellen. The lack of inflation remains the most significant impediment to raising rates, but Yellen and other FOMC members have insisted that strong economic conditions will lead to higher inflation levels.
