The Japanese yen has posted slight gains in the Monday session. In North American trade, USD/JPY is trading at 113.30, down 0.16% on the day. On the release front, Japanese BSI Manufacturing Index improved to 9.7 points, but this fell short of the estimate of 10.1 points. In the US, JOLTS Openings softened to 6.00 million, shy of the estimate of 6.03 million. On Tuesday, the US releases PPI, an important inflation indicator.

The markets continue to digest Friday’s US employment numbers, which were a mix. Nonfarm Employment Change softened in November, but the reading of 228 thousand easily beat the estimate of 198 thousand. However, Average Hourly Earnings, which measures wage growth, came in at 0.2%, shy of the estimate of 0.3%. Analysts remain stumped as to why wages remain stubbornly low, given a red-hot labor market which is running at full capacity. On an annual basis, wages rose 2.5%, short of the forecast of 2.7%. The Fed is also concerned with the lack of wage growth, and this could have a significant effect on monetary policy – if wage growth and inflation shows improvement in 2018, the Fed could raise rates up to three times in 2018.

Will the real Kuroda please stand up? Bank of Japan Governor Haruhiko Kuroda has been sending mixed signals over the BoJ’s monetary policy. Kuroda has insisted that there will be no reduction of stimulus until the Bank’s inflation target of 2% is met. Still, there has been pressure on him to reconsider, given the marked improvement in Japanese economy this year. However, the governor has recently dropped subtle hints about easing monetary policy. Last week, Kuroda said that a change in economic conditions could lead the BoJ to raise its yield target, which would be a significant change to current policy. Kuroda noted that an exit from quantitative and qualitative easing would be "quite an important topic" to communicate to the markets. Although the BoJ is unlikely to tighten policy before next year at the earliest, these deliberate hints indicated that the Bank is preparing for a time when conditions will warrant tightening monetary policy, after years of an ultra-accommodative stance.


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