The Japanese yen has started the week quietly, as USD/JPY trades in the low-118 range. The yen remains at the lowest levels we’ve seen since August 2007. Will we see a 120 yen this week? On the release front, there are no Japanese releases on Monday as there is a bank holiday. In the US, there is just one release, Flash Services PMI. No change is expected in this reading.
The struggling Japanese economy has officially slipped into recession, as GDP has posted two straight declines. In Q3, GDP declined -0.4%, well below the estimate of 0.5%. Prime Minister Abe responded by delaying an increase in the sales tax to 10%. Abe then surprised the markets by announcing elections halfway through his term. The upcoming election could end up as a referendum on Abenomics, which has involved sharp monetary easing and heavy government spending.
In the US, there was a flurry of releases on Thursday. Consumer inflation met expectations, as CPI came in at 0.0% and Core CPI posted a gain of 0.2%. Unemployment Claims were almost unchanged, with a reading of 291 thousand. Philly Fed Manufacturing Index soared to 40.8 points and US Existing Home Sales improved to 5.26 million, pointing to expansion in the manufacturing and housing sectors.
USD/JPY 118.25 H: 118.38 L: 117.58
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