The Japanese yen has posted considerable gains in the Wednesday session. In North American trade, USD/JPY is trading at 106.60, down 0.68% on the day. On the release front, Japanese indicators were soft. Preliminary Industrial Production dropped 6.6%, compared to the estimate of -4.1%. Retail Sales fell to 1.6%, shy of the estimate of 2.3%. This marked a 3-month low. There was more bad news, as Housing Starts plunged 13.2%, missing the estimate of 4.5%. This reading was the worst since December 2014. Later in the day, Japan releases Final Manufacturing PMI. In the US, Preliminary GDP for Q4 came in at 2.5%, matching the forecast. Housing data continues to be a concern, as Pending Home Sales declined 4.7%, well off the estimate of 0.4%.
The US dollar recorded slight gains against the yen after Federal Reserve Chair Jerome Powell’s testimony before a congressional committee on Tuesday. Powell was cautious, saying that the Fed planned to continue its current policy of gradual rate increases, despite the stimulus of government spending and recent tax reform. Powell sounded optimistic about economic conditions, noting that the US economy was benefiting from the global recovery as well as changes in fiscal policy. Importantly, Powell did not address the question of an acceleration of rate hikes. Currently, the Fed has projected three rate hikes in 2018, with increases widely expected at the March and May meetings. However, with inflation moving higher and the economy continuing to perform well, many analysts expect the Fed to raise rates four or more times this year. Any hints at an increased pace of rate hikes could send the US dollar broadly higher.
