USD/JPY has posted gains in the Tuesday session, continuing the upward movement which started the week. In North American trade, the pair is trading at 109.98, up 0.54% on the day. In the US, JOLTS Job Openings improved to 6.17 million, easily beating the forecast of 5.96 million. Later in the day, Japan releases manufacturing and inflation reports. On Wednesday, the US will publish PPI, which is expected to improve to 0.3%.
After a week of increased tensions in the Korean peninsula, an easing in the crisis between North Korea and neighboring Japan and South Korea has seen an exit from safe-haven assets, such as the Japanese yen. USD/JPY has jumped 1.6% this week, erasing last week’s losses. With North Korea celebrating its 69th anniversary of its founding, there were concerns that Pyongyang would use the occasion to flex some muscle and test a nuclear bomb or missile. North Korea marked last year’s anniversary by exploding its fifth nuclear test. There were no incidents over the weekend, although the US, along with its allies Japan and South Korea, remain on alert for further provocations from the north. The volatility which has marked the Japanese currency is testament to its safe-haven status, as investors have snapped up the yen when the North Korean crisis, one of the world’s geopolitical hot spots, heats up.
The US economy has been performing well in the second quarter. Preliminary GDP came in at a sizzling 3.0%, and the labor market remains close to capacity. Still, the Achilles heel of the economy remains stubbornly low inflation levels. Wage pressure has been limited, despite the fact that many businesses cannot fill job openings. Weak inflation has hampered the Fed’s plans to raise interest rates a third time this year, and the odds of a December hike have dipped to just 31%, as the markets are increasingly doubtful that the Fed will make a move before next year. Will the inflation picture improve? We could see better numbers this week for August inflation – PPI is expected to improve to 0.3% on Tuesday, and the same gain is forecast for CPI on Wednesday. Both estimates are higher than the July readings.
