Yen Gains Ground, US ADP Employment Report Next

USD/JPY has posted losses in the Wednesday session. Currently, the pair is trading at 112.42, down 0.38% on the day. There are no Japanese events on the schedule. In the US, ADP Nonfarm Payrolls kicks off this week’s job reports, with the indicator expected to slow to 131 thousand. The ISM Nonfarm Manufacturing PMI is forecast to edge up to 55.5 points. We’ll also hear from Federal Reserve Chair Janet Yellen, who will deliver remarks at an event hosted by the St. Louis Fed. On Thursday, the US releases unemployment claims, which is expected to drop to 266 thousand.

The Japanese economy has rebounded in 2017, and GDP has expanded for six consecutive quarters. The sore point in the economy is chronically low inflation, but there was some good news earlier this week. BoJ Core CPI, the inflation indicator relied upon by the BoJ, accelerate to 0.6% in August, its strongest gain since May 2016. This reading follows Tokyo Core CPI, which rebounded in September with a respectable gain of 0.5%, its best gain since March 2015. Still, inflation levels remain well below the BoJ inflation target of just below 2.0%, and BoJ Governor Haruhiko Kuroda has been crystal clear that he has no plans to tighten its accommodative monetary policy until inflation levels move higher. Inflation isn’t expected to climb anytime soon, and the BoJ has acknowledged this, saying that is doesn’t expect its inflation target of around 2.0% to be reached before fiscal year 2020.

Will the Fed make a rate move in December? Just a few weeks ago, federal futures had priced in a December hike at below 50 percent, but the odds have surged to 76 percent, according to the latest CME Fed Watch release. Although FOMC members remain divided on the prudence of another rate hike in 2017, Fed Chair Janet Yellen has broadly hinted that she favors a December move, and the markets have picked up on her message. The US economy continues to perform well, and the labor market remains close to capacity. The Achilles heel in an otherwise strong economy is inflation, which remains well below the Fed’s target of 2 percent. If sentiment towards a December hike remains high, the US dollar could gain ground.

After failing to pass a new health care act through a skeptical Congress, will Donald Trump succeed with tax reform? Last week, the White House announced the new tax proposal, called the Unified Tax Reform Framework, which includes lowering corporate and personal income taxes. However, the plan is sketchy and short on specifics, most importantly, how will the plan be paid for? Trump has insisted that the cuts will trigger strong economic growth which will more than pay for itself. However, Moody’s, the well-respected credit rating company, is not impressed by the rhetoric. On Monday, Moody’s said that the tax plan is “likely credit negative”, arguing that tax cuts would not be offset in spending cuts, which would result in a higher federal budget deficit and debt. The reduction in federal government revenue would negatively affect the US credit rating. Some Republican lawmakers have already come out against the plan, so it appears that the proposal will have an uphill battle to pass through the House of Representatives and the Senate.

USD/JPY Fundamentals

Wednesday (October 4)

• 8:15 US ADP Nonfarm Employment Change. Estimate 131K
• 9:45 US Final Services PMI. Estimate 55.1
• 10:00 US ISM Non-Manufacturing PMI. Estimate 55.5
• 10:30 US Crude Oil Inventories. Estimate -0.5M
• 15:15 Federal Chair Janet Yellen Speaks

Thursday (October 5)

• 8:30 US Unemployment Claims. Actual 266K

*All release times are GMT

*Key events are in bold

USD/JPY for Wednesday, October 4, 2017

USD/JPY October 4 at 7:10 EDT

Open: 112.85 High: 112.91 Low: 112.35 Close: 112.42

USD/JPY Technical

USD/JPY has posted slight losses in the Asian and European sessions.

• 110.94 is providing support
• 112.57 has switched to a resistance role following losses by USD/JPY on Wednesday

Current range: 110.94 to 112.57

Further levels in both directions:

• Below: 110.94, 110.10 and 108.69
• Above: 112.57, 113.55, 114.49 and 115.50

OANDA’s Open Positions Ratios

USD/JPY ratio is unchanged in the Wednesday session. Currently, long positions have a majority (56%), indicative of trader bias towards USD/JPY continuing to move to higher ground.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.