Japanese Yen Edges Higher, ADP Payrolls Next

Fundamental analysis of Forex market

USD/JPY has edged lower in the Tuesday session, erasing the losses seen on Monday. In North American trade, the pair is trading at 113.65, down 0.27% on the day. On the release front, Japanese consumer confidence remains weak, coming in at 43.4 points. This beat the estimate of 43.0 points. There are no major releases out of the United States. On Wednesday, the U.S releases two key events – ADP nonfarm payrolls and ISM Non-Manufacturing PMI.

In the U.S, consumer spending and confidence levels remain strong. Consumer spending rose 0.3% in August, matching the forecast. The UoM Consumer Sentiment report pushed above the 100-level for the first time since March, although the reading of 100.1 missed the estimate of 100.5 points. On the inflation front, the Core PCE Price Index, which is the Federal Reserve’s preferred inflation indicator, dipped to 0.0% in August, shy of the estimate of 0.1%. This was the first time the indicator failed to post a gain since March 2017. Still, inflation remains close to the Fed’s target of 2%, so a December rate hike remains likely.

The escalating trade war between U.S and its major trading partners has left the Japanese automobile sector particularly vulnerable, as that industry is highly dependent on open, tariff-free borders. On a positive note, Japan and the U.S have agreed to start trade talks, which will keep Japan’s auto sector protected from U.S tariffs, at least for the time being. President Trump has vowed to redress the $69 billion trade surplus that Japan has with the U.S., although Japan has balked at signing a free trade deal with the U.S, as it prefers a multilateral trade agreement. However, Trump has just signed free trade agreements with Canada and Mexico, and can be expected to insist on a bilateral pact with Japan.