The Japanese yen has ticked lower in the Thursday session. In the North American session, USD/JPY is trading at 112.89, up 0.05% on the day. On the release front, Japan posted a June trade surplus of JPY 0.07 trillion, short of the estimate of JPY 0.15 trillion. Still, this was a marked improvement from the May reading of JPY -0.30 trillion. In the U.S, manufacturing and employment data were better than expected. The Philly Fed Manufacturing Index climbed to 25.7, easily beating the estimate of 21.6 points. Unemployment claims dropped to 207 thousand, better than the estimate of 220 thousand. Later in the day, Japan releases National Core CPI, which is expected to edge up to 0.08%.
The trade war between the U.S and its major trading partners has raised serious concerns not just with investors, but with Federal Reserve policymakers as well. The Federal Reserve Beige Book for July, released on Wednesday, was rife with references to ‘tariffs’. This trend started in the April Beige Books after President Trump threatened in March to impose tariffs on China. Most of the twelve Fed regional districts referred to tariffs in their individual reports, which make up the Beige Book. Some Fed policymakers have also voiced their concern over the impact that tariffs could have on the U.S economy and is an issue the Fed will have to take into consideration, as it mulls over rate policy for the next six months.
With the U.S economy in great shape, Jerome Powell didn’t have to look far to reaffirm his positive outlook on the U.S economy in testimony before the Senate Banking Committee earlier this week. Powell said that he expected the labor market to remain tight and inflation to stay close to the Fed’s target of 2 percent for the next several years. Powell added that the Fed would continue to gradually raise interest rates. Lawmakers appeared satisfied with current monetary policy, but Powell did face some pointed questions regarding the escalating trade war, which has raised concerns that economy could take a downturn if the tariff battles continue. The Fed continues to project two more rate hikes in the second half of 2018, most likely in September and December. According to the CME Group, the likelihood of a quarter-point rate hike in September is 84 percent.
