USD/JPY continues to gain ground and has punched above 114 yen in the Wednesday session. In the North American session, USD/JPY is trading at 114.02, up 0.34% on the day. Today’s highlight is the FOMC rate statement, with no change expected in the benchmark interest rate. ADP Nonfarm Employment Change jumped to 235 thousand, easily beating the estimate of 202 thousand. The ISM Manufacturing PMI slowed to 58.7, short of the estimate of 59.5 points. Later in the day, Japan release Monetary Base. On Thursday, Japan publishes consumer confidence and the US releases unemployment claims.
There were no surprises from the Bank of Japan, which released its rate statement on Tuesday. The BoJ maintained its commitment to guide interest rates at -0.10% and 10-year bond yields around zero percent. Despite weak inflation and wage growth, there has not been much pressure on the BoJ to change policy, as the Japanese economy has performed well in 2017. GDP expanded at an annualized 2.5 percent in the second quarter, buoyed by solid numbers from the manufacturing and export sectors. Consumer spending has improved, and retail sales in September improved 2.3%, compared to 1.7% a month earlier. Retail sales have risen for 11 consecutive months, as consumers appear more confident in the economy and have opened their purse strings.
All eyes are on the Federal Reserve, which releases a rate statement later on Wednesday. The Fed is widely expected to maintain the benchmark rate at 1.25%, but the statement could provide clues about future rate policy. The markets have priced in a December rate at 98.5%, which would mark a third rate for 2017. What can we expect in 2018? That depends to a large degree on the new chair of the Fed. Janet Yellen will wind up her 3-year term in February, and she is not expected to be reappointed by President Trump. The front runner is economist Jerome Powell, who is a proponent of much higher rates – his "Taylor Rule", which calls for higher rates when inflation is high or the labor market is at full capacity. Trump is expected to make his choice on Thursday, ahead of his trip to Asia.
