The Japanese yen has started the week unchanged. In Monday’s North American session, USD/JPY is trading at 1.1182, unchanged from the Friday close. On the release front, Japanese Revised Industrial Production rebounded sharply in August, with a gain of 2.0%. This was just shy of the forecast of 2.1%. In the US, the Empire State Manufacturing Index jumped to 30.2, crushing the forecast of 20.3 points. This marked its highest level since 2009.
On Sunday Bank of Japan Governor Haruhiko Kuroda reiterated that the BoJ remains firmly committed to its ultra-easing monetary policy. Kuroda spoke at a Group of 30 meeting in Washington, and said that the policy would remain in place until inflation levels moved higher. Kuroda acknowledged that the BOJ’s inflation target of 2 percent was unlikely to be reached anytime soon, but he expected rising labor costs to push inflation levels higher. BoJ policymakers have echoed Kuroda’s sentiment that inflation levels will move higher, but the data does not appear to support this optimism, and the BoJ has been forced to lower its inflation forecast a number of times in 2017. With the BoJ forecasting that inflation will not reach 2 percent until fiscal year 2020, it’s a safe bet that the bank’s accommodative policy won’t be tightened any time soon.
The US economy continues to perform well in 2017 and the labor market remains close to capacity. However, this hasn’t translated into stronger inflation, and there was some disappointment in the markets as September CPI and Core CPI missed their estimates. On the release front, CPI gained 0.5%, short of the estimate of 0.6%. Core CPI posted a small gain of 0.1%, shy of the forecast of 0.2%. With inflation an important consideration in future rate decisions by the Federal Reserve, investors will be anxiously monitoring how Fed policymakers respond to September’s soft inflation numbers. According to CME FedWatch, the soft inflation numbers have not affected the odds of a December rate hike, as fed futures have currently priced a December hike at 91 percent.
