USD/JPY has gained ground in the Wednesday session. In the North American session, the pair is trading at 110.76, up 0.25% on the day. On the release front, Japanese PPI disappointed with a gain of 0.6% in January, shy of the estimate of 1.0%. This was the lowest level since January 2017. Later in the day, Japan releases GDP for the fourth quarter, with an estimate of 0.4%. In the U.S., consumer inflation data for January was soft. CPI ticked up to 0.0%, shy of the estimate of 0.1%. Core CPI posted a gain of 0.2%, matching the estimate. On Thursday, the U.S. publishes retail sales and PPI.
Inflation levels in the U.S. remain low, despite a strong U.S. economy and strong labor market. CPI showed no change in January, and has failed to post a gain since November. Core CPI has recorded weak gains of 0.2% for four successive months. On an annualized basis, CPI gained 1.6% in January, the weakest year-over-year gain since mid-2017. The soft inflation numbers were a result of low energy prices, which fell 3.1% in January as oil prices remain under pressure.
Are we close to a breakthrough in the U.S-China trade war? The crisis between the two largest economies in the world has rocked equity markets and dampened risk appetite. The U.S. has imposed 10% tariffs on Chinese goods and has threatened to raise the tariffs to a punishing 25% on March 1. Trade officials from the U.S. and China are meeting for a third round of negotiations, and U.S. Treasury Secretary Steven Mnuchin has joined the talks. There was positive news on Tuesday, as President Trump said that he could postpone the March 1 deadline if the trade talks made sufficient progress. If the negotiations yield an agreement, risk appetite will jump and the safe-haven yen could head lower.
