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Japanese Yen Retracts, Household Spending Next

The Japanese yen has lost ground in the Wednesday session. In North American trade, USD/JPY is trading at 113.15, up 0.33% on the day. There are no data indicators in Japan or the United States. On Thursday, the focus will be on employment data will be in focus, with the release of ADP nonfarm payrolls and unemployment claims. We’ll also get a look at ISM Non-Manufacturing PMI. Japan will release household spending and average cash earnings.

There was initial optimism in the markets after the U.S and China agreed to hold talks on resolving contentious trade issues. Most importantly, President Trump suspended his threat to raise tariffs on Chinese products as of December 1. However, the optimism proved to be short-lived, as investors are asking if the 90-day truce is simply a pause in the trade war between the world’s two largest economies. Risk appetite waned on Tuesday, and investors snapped up the safe-haven yen, which climbed to its highest level since November 20. Can the sides narrow their differences in just a few weeks? The U.S. and China remain far apart on a number of issues, including repeated charges by the U.S. that China is engaged in theft of U.S. intellectual property. The markets have been very sensitive to the trade dispute, and the upcoming negotiations between the U.S. and China, with the likely ups-and-downs, promise to have a significant effect on the direction of USD/JPY.

A detente in the U.S-China trade war cannot come soon enough for the Japanese economy, as key sectors of the economy are showing signs of weakness. Japan’s manufacturing sector slowed down in November, raising concerns about the strength of the economy. Manufacturing PMI slipped to 52.2, down from 52.9 in October. The ongoing global trade war is a primary factor in the weak reading, as Japanese companies which export to the U.S. or China have been hurt by higher tariffs. A weaker eurozone economy has led to softer European demand for Japanese exports. Making matters worse, domestic demand remains fragile, as nervous consumers continue to hold tightly onto their purse strings.