The dollar has posted gains on Wednesday, as USD/JPY trades in the low-117 range on Wednesday. On the release front, the Federal Reserve will release its policy statement, and we’ll get a look at November CPI. The markets are expecting a small decline of 0.1%. There are no Japanese releases on Wednesday.
In the US, Tuesday’s data was a disappointment. Building Permits dropped to 1.04 million, short of the estimate of 1.06 million. Housing Starts rose slightly to 1.04 million, shy of the estimate of 1.06 million. The Manufacturing PMI dipped to 53.7 points, well off the forecast of 56.1 points. This was the indicator’s worst showing since January.
The yen has served as an unwilling punching bag for the US dollar for months, and last week USD/JPY pushed above the 121 line. However, the Japanese currency has turned the tables this week, as the yen has gained 200 points on Tuesday. The safe-haven yen took advantage of a dip in the Chinese Flash Manufacturing PMI, which came in at 49.5 points. This pointed to contraction in the PMI for the first time since May and raises concerns about continuing weakness in the global economy.
Japan’s ruling Liberal Democratic Party registered a convincing election victory on the weekend, giving Prime Minister Abe a comfortable majority in the lower house of parliament. However, winning the election is likely to be the easy part, as the economy is stumbling and Abe’s economic reforms will face resistance from the upper house. Growth and inflation have not met the government’s target and the yen has tumbled to around 120 under “Abenomics”, with the BoJ implementing radical monetary easing. Meanwhile, the Japanese Tankan indices were a mix in the Q3 readings. The Manufacturing Index dipped to 12 points, down from 13 points in Q2. There was better news from the Non-Manufacturing Index, improving to 16 points, up from 14 points in Q2. The yen showed little response to these key releases.
USD/JPY 117.19 H: 117.50 L: 116.45
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