The Japanese yen is unchanged in the Monday session. In North American trade, USD/JPY is trading at 109.52, down 0.01% on the day. On the release front, there are no U.S or Japanese events on the schedule. In the U.S, Factory Orders is expected to decline 0.4%, after a strong gain of 1.6% a month earlier. Japan will release Household Spending, with the markets expecting a gain of 0.8% after two straight declines. On Tuesday, the U.S releases manufacturing and employment reports.
Is the Federal Reserve moving closer to a neutral monetary policy? Recent statements by FOMC policymakers appear to support such a conclusion, which would mean that the Fed would let the economy ‘ride on its own steam’ without intervening by adjusting interest rates. In the meantime, the Fed continues to project two more rate hikes in 2018, after raising rates by a quarter-point in March. The most likely dates for a rate hike are June and September. A fourth hike in December is possible, with a likelihood of about 40%. The minutes of the May meeting noted that policymakers would consider allowing inflation to rise above the Fed’s 2% target for a temporary period, which means that the Fed would not rush to raise rates based on the inflation target.
The U.S released strong employment numbers on Friday, but USD/CAD was unchanged on the day. Wage growth improved to 0.3%, up from 0.1% a month earlier. Nonfarm payrolls jumped from 189 thousand to 164 thousand and the unemployment rate dropped to a sizzling 3.8 percent. All three indicators beat their estimates and are indicative of a labor market running at full capacity.
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After a brief hiatus, the markets are again facing the nasty reality of a trade war between the U.S. and its major trading partners, which could be bad news for the export-reliant Japanese economy. On Thursday, the Trump administration made good on its threats and imposed stiff tariffs on the European Union, Mexico and Canada. The U.S had granted all three trading partners a temporary extension, but cited insufficient progress on trade talks as the reason for the tariffs. This has triggered promises of retaliatory tariffs on US products, and matters heated up on the weekend at the G-7 meeting of finance ministers in Canada. US Treasury Secretary Steve Mnuchin faced sharp criticism from other finance ministers over the tariffs. There are fears that the escalating trade tensions could trigger a global trade war.