USD/JPY has recorded losses in the Tuesday session. In North American trade, the pair is trading at 112.15, down 0.47% on the day. On the release front, Japan’s current surplus improved to JPY 2.27 trillion, easily beating the estimate of JPY 1.98 trillion. Japanese Economy Watchers Sentiment improved to 51.3, beating the estimate of 49.9 points. On Wednesday, the US releases JOLTS Job Openings and the Federal Reserve releases the minutes of the September policy meeting.
Japanese numbers have started the week on a positive note. The current account surplus climbed to JPY 2.27 trillion, the highest monthly surplus since 2007. As well, Economy Watchers Sentiment pushed above the 50-point line, with a reading of 51.3 points. This release points to optimism from workers regarding economic conditions. Japan’s economy has rebounded in 2017, boosted by a weak yen and strong global demand for Japanese products. Still, chronically weak inflation remains a sore point, and the Bank of Japan has acknowledged that it doesn’t expect its inflation target of just below 2.0% percent to be reached before 2020. On Tuesday, a BoJ report gave a thumbs-up to the economy, noted that exports were strong and consumer spending and construction had strengthened. BOJ Governor Haruhiko Kuroda reiterated a familiar message on Tuesday, saying that the bank will continue its ultra-loose stimulus program until inflation moves above its target of 2 percent.
The Federal Reserve did not raise rates at the September meeting, but the markets are clearly expecting one final rate hike in December. According to CME FedWatch, the odds of a December rate hike are currently at 86%, compared to just 31% a month ago. Why the huge turnaround? A strong US economy has helped raise the odds, but the primary reason for the huge shift in market sentiment can be attributed to the Fed policymakers that have come out in support of a rate hike, notably Fed Chair Janet Yellen. The lack of inflation remains the most significant impediment to raising rates, but Yellen and other FOMC members have insisted that strong economic conditions will lead to higher inflation levels. Even if inflation does not move higher before 2018, the Fed now appears ready to press the rate trigger.
