USD/JPY has recorded small losses in the Wednesday session. In North American trade, USD/JPY is trading at 113.78, down 0.18% on the day. On the release front, US data was sharp, as durable goods orders and housing reports beat the forecasts. Core Durable Goods Orders gained 0.7%, above the estimate of 0.5%. Durable Goods Orders soared 2.2%, crushing the estimate of 1.0%. As well, New Home Sales jumped to 667 thousand, well above the forecast of 555 thousand. Later in the day, Japan releases Services Producer Price Index, which is expected to remain unchanged at 0.8%. On Thursday, the US releases unemployment claims and Pending Home Sales, and Japan will publish Tokyo Core CPI.
Japanese Prime Minister Shinzo Abe cruised to victory in the Japanese election on Sunday, and this means ‘more of the same’ for Japan’s ultra-accommodative monetary policy. The Bank of Japan holds a policy meeting next week, and policymakers are expected to maintain its inflation forecasts. At the September meeting, the BoJ stated that it did not expect inflation to reach the Bank’s 2.0% target until fiscal year 2020. BoJ Governor Haruhiko Kuroda has long insisted that the bank will not taper its stimulus program until inflation moves higher. Kuroda’s 5-year term as governor expires in April 2018, although he remains the top contender for the position.
The guessing game at the Federal Reserve continues, as investors await the next choice for Federal Reserve chair. Janet Yellen’s 3-year term expires in February, and President Trump has said he will nominate a new Fed head in the coming days. The front runners are economist John Taylor and Federal Reserve Governor Jerome Powell. Taylor advocates a rule in which rates which be as high as 3 percent, given current economic conditions. Powell is more closely aligned to Fed Chair Janet Yellen’s monetary stance which advocates an incremental increase in rates. With the two candidates representing sharply differing views on interest rate levels, Trump’s choice for the new Fed chair could have an effect on monetary policy and the strength of the US dollar. Still, most economists are of the view that monetary policy will be largely driven by the performance of the US economy. Inflation levels remain weak and may not reach Fed’s target of 2 percent before 2020, but that has not dampened expectations of a December rate hike. According to CME FedWatch, the odds of a raise in December stand at 96 percent.
