USD/JPY has posted considerable losses on Tuesday, losing 0.84 percent. In the North American session, USD/JPY is trading at 109.60, marking a 6-month low for the pair. On the release front, Japanese Average Cash Earnings posted a gain of 0.5%, above the forecast of 0.3%. In the US, there was good news from the employment front, as JOLTS Jobs Openings jumped to 6.04 million, crushing the estimate of 5.65 million.
The Japanese yen received a boost on Tuesday, thanks to a solid wage growth report. Average Cash Earnings in April posted a respectable gain of 0.5%, rebounding from a 0.3% decline in the previous release. The dollar has dropped below the 110 level for the first time since April 25. The Japanese economy has shown some improvement, as stronger global demand has buoyed the export and manufacturing sectors. Japan will release Final GDP on Wednesday, and the markets are expecting GDP to be revised upwards to 0.6%, compared to 0.5% in the Preliminary GDP. If the GDP matches or beat this estimate, the yen’s gains could continue.
The Federal Reserve holds its policy meeting next week, and the markets are widely expecting the Fed to raise rates for the second time in 2017. On Monday, the odds of a rate increase stood at 96%, but the odds have dipped to 91%, in response to the dismal Nonfarm Payrolls report on Friday. An increase in interest rates represents a vote of confidence in the US economy, but the Fed continues to have some concerns. Inflation remains stubbornly low, despite a labor market that remains close to capacity. Fed policy makers are also scratching their heads over soft consumer spending, which has not kept pace with high levels of consumer confidence. As for additional rate hikes in the second half of 2017, the markets remain skeptical, with the odds of a September rate hike at just 22%. However, stronger data in the third quarter will likely raise the likelihood a September hike.
