USD/JPY has posted strong gains in the Wednesday session. In the North American session, USD/JPY is trading at 106.18, up 0.81% on the day. On the release front, US Final GDP impressed with a gain of 2.9%, beating the estimate of 2.7%. There was more good news as Pending Home Sales jumped 3.1%, rebounding after the previous release of -4.7%. Later in the day, Japan releases Retail Sales, which is expected to edge up to 1..7%. On Thursday, US unemployment claims is forecast to tick up to 230 thousand, and UoM Consumer Sentiment is predicted to climb to 101.9 points. Japan will publish Tokyo Core CPI and Preliminary Industrial Production.
The tariff dispute between the US and China has shaken up global stock markets and also caused volatility in the currency markets. The safe-haven yen moved higher last week, after President Trump’s dramatic announcement that he was imposing stiff tariffs on up to $60 billion in Chinese imports. China vowed to retaliate and slap imports on a range of US products. This move came on the heels of a blanket US tariff on steel imports. Although Trump backtracked and exempted Canada, Mexico and other countries from the steel tariffs, the threat of a global trading war has unnerved investors. This week, however, China was singing a more conciliatory tune, saying it would apply to the World Trade Organization to overturn the tariffs. The US has imposed the tariffs under a national security provision, but China has argued that the move is a trade barrier with the intent of protecting domestic producers. Although the dispute has not been resolved, the Chinese move has eased tensions and restored investor risk appetite, in the hope that both the US and China will climb down from their trees and reach some agreement instead of imposing tariffs on each other.
Much like the situation in the eurozone, Japan’s economy continues to expand, but underlying inflation remains at low levels. Inflation is currently around 1%, well below the Bank of Japan target of just below 2 percent. The BoJ has been consistent in its message to the markets, saying that it has no plans to tighten its ultra-accommodative monetary policy until inflation moves closer to target. With the rebound in the Japanese economy, there has been speculation that the BoJ could tighten its policy, which could cause some volatility from the yen.
