HomeContributorsFundamental AnalysisYen Shrugs off Strong Japanese Inflation, Mfg. Reports

Yen Shrugs off Strong Japanese Inflation, Mfg. Reports

USD/JPY has edged higher in the Monday session. In North American trade, the pair is trading at 113.60. On the release front, Japanese PPI posted a gain of 2.1%, above the estimate of 1.8%. Preliminary Machine Tool Orders posted a strong gain of 34.7%. In the US, the Empire State Manufacturing Index disappointed with a reading of -1.0, short of the forecast of 7.2 points. On Tuesday, construction numbers will be in focus, with the release of Building Permits and Housing Starts.

Japan started the week with solid data, but the yen failed to respond. On the inflation front, PPI has rebounded in remarkable fashion, showing improvement in 10 straight releases. The index jumped to 2.1% in April, above the forecast of 1.8%. Is inflation on the move? We won’t get a look at Tokyo Core CPI and other inflation indicators until next week, but stronger numbers would put pressure on the BoJ to reconsider its ultra-loose monetary policy, which has yet to produce sustained growth or higher inflation, as was advertised by the government and the BoJ. There was more positive news from the manufacturing sector, as orders for machine tools jumped 34.7% in April, on a year-on year basis.

The yen recorded gains on Friday, as US consumer spending and inflation numbers fell short of estimates. CPI came in at 0.2%, short of the estimate of 0.3%. Core CPI, which excludes the most volatile items, posted a small gain of 0.1, shy of the estimate of 0.2%. Retail Sales came in at 0.3%, compared to the forecast of 0.5%. Retail Sales rose 0.4%, short of the estimate of 0.6%. Consumer confidence remained strong, as the reading of 97.7 beat the forecast of 97.0 points. These numbers underscored a troubling trend where strong consumer confidence has failed to translate into increased consumer spending.

Donald Trump’s firing of FBI director James Comey could have been viewed as yet another controversial move by the temperamental president, but the firing has set off a political firestorm in Washington. Trump has been accused of triggering a constitutional crisis and undermining the rule of law. Comey had been conducting an investigation into possible collusion between Trump and Russia during the presidential campaign, so predictably, Comey’s dismissal has raised suspicions that Trump is trying to impede the investigation by firing Comey. The crisis could heat up further, with calls in Congress to appoint an independent investigator into Trump’s connections with Russia. This latest political storm has yet to shake up the markets, but a prolonged crisis could paralyze Washington and delay Trump’s agenda of tax reform and increased fiscal spending.

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