USD/JPY – Yen trading sideways, as Japanese, U.S data beats expectations

The Japanese yen is unchanged in the Tuesday session. In North American trade, the pair is trading at 111.05, down 0.03% on the day. On the release front, BoJ Core CPI edged up to 0.5%, above the estimate of 0.3%. In the U.S, manufacturing and consumer confidence data was stronger than expected. CB Consumer Confidence jumped to 133.4, crushing the estimate of 126.6 points. On Wednesday, Japan releases consumer confidence, while the U.S publishes Preliminary GDP and Pending Home Sales.

Japanese inflation numbers have been a mix this week. BoJ Core CPI, the Bank of Japan’s preferred inflation indicator, improved to 0.5%. Earlier in the week, National Core CPI remained pegged at 0.8%, shy of the estimate of 0.9%. The Services Producer Price Index edged lower to 1.1%, missing the estimate of 1.2%. Despite an ultra-accommodative monetary policy, inflation remains well below the BoJ target of just below 2 percent. Rather than reduce the inflation target, the Bank will likely postpone yet again the timeline for its 2% target to fiscal year 2020 or beyond. Massive quantitative and qualitative easing have failed to coax inflation higher, so policymakers may have to consider other means of fiscal easing in order to encourage more spending and push inflation higher. The markets will get another look at inflation on Thursday, with the release of Tokyo Core CPI. The indicator is expected to remain unchanged at 0.8%.

The Federal Reserve monetary policy has been one of gradual rate increases, as the U.S economy continues to expand. The Fed stance can be summed up as “proceed with caution”. Fed Chair Jerome Powell reiterated this position, with a dovish speech at the Jackson Hole Economic Symposium on Friday. However, the Fed has faced criticism about its current policy from both sides. Some analysts have argued that the Fed has been too aggressive, given weak inflation, while others say the Fed should tighten more quickly, due to the extremely tight labor market. Powell appeared to take a middle approach of raising rates, but slowly. The Fed has already raised rates twice this year, and a September hike is practically a given, with the CME Group estimating the odds of a hike at 96%. The odds of a December hike currently stand at 66%.

A deal is a deal

Canada should expect tough trade negotiations with U.S

USD/JPY Fundamentals

Tuesday (August 28)

• 1:00 Japanese BoJ Core CPI. Estimate 0.3%. Actual 0.5%
• 8:30 US Goods Trade Balance. Estimate -68.6B. Actual -72.2B
• 8:30 Preliminary Wholesale Inventories. Estimate 0.1%. Actual 0.7%
• 9:00 US S&P/CS Composite-20 HPI. Estimate 6.4%. Actual 6.3%
• 10:00 US CB Consumer Confidence. Estimate 126.6. Actual 133.4
• 10:00 US Richmond Manufacturing Index. Estimate 18. Actual 24

Wednesday (August 29)

• 1:00 Japanese Consumer Confidence. Estimate 43.4
• 8:30 US Preliminary GDP. Estimate 4.0%
• 10:00 US Pending Home Sales. Estimate 0.6%

*All release times are DST

*Key events are in bold

USD/JPY for Tuesday, August 28, 2018

USD/JPY August 28 at 10:25 DST

Open: 111.08 High: 111.36 Low: 110.96 Close: 111.05

USD/JPY Technical

USD/JPY edged higher in the Asian session but gave up these gains in European trade. The pair is showing limited movement in North American trade

• 110.21 is providing support
• 111.22 was tested in resistance earlier. It remains a weak line

Further levels in both directions:

• Below: 110.21, 109.21 and 108.11
• Above: 111.22, 112.30, 113.75 and 114.73
• Current range: 110.21 to 111.22

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