The Japanese yen has posted considerable gains in the Wednesday session. In North American trade, USD/JPY is trading at 111.84, up 0.34% on the day. On the release front, Japanese Retail Sales disappointed with a decline of 0.2%. This missed the estimate of a 0.1% gain. Later in the day, Japan releases Preliminary Industrial Production, with an estimate of 1.9%. In the US, Preliminary GDP for the third quarter came in at 3.3%, matching the forecast. Pending Home Sales jumped to 3.5%, crushing the estimate of 1.1%. As well, Fed Chair Janet Yellen will testify before a congressional committee. On Thursday, the US releases Personal Spending and unemployment claims, and Japan publishes Tokyo Core CPI.
Fed Chair Designate Jerome Powell testified before the Senate Banking Committee on Tuesday. Powell said that he favored tailoring regulations for small banks, leaving the toughest regulations for the big players. Powell was cautious and diplomatic during the hearing, saying that the case is building for a December rate hike, and refused to express an opinion on the Trump tax bill. He will replace Janet Yellen in February, and is widely expected to continue Yellen’s monetary stance of small, gradual rate hikes. Fed policymakers have differing views on what to do about inflation, which remains at low levels. Some members have proposed that the Fed drop its 2 percent target, in favor of a "gradually rising path" for prices. The Fed remains confounded by low inflation and wage growth, despite a labor market that is at full capacity. Still, the Fed will likely pull the rate trigger next month, and could raise rates up to 3 more times in 2018 if the economy continues to expand at its current pace.
Is the Bank of Japan rethinking its massive stimulus program? With the Japanese economy showing moderate growth, there has been speculation that the Bank of Japan is giving some thought to tapering stimulus. Any tapering to the program could give a significant boost to the yen, so the markets are closely monitoring BoJ statements and comments from BoJ policymakers, looking for clues. However, a stronger yen would hurt exports, which has been a catalyst for the stronger economy. Inflation and wage growth remain low, and if we are to take BoJ Governor Haruhiko Kuroda at his word, the Bank will not taper stimulus before inflation moves closer to the BoJ’s target of around 2 percent.
