USD/JPY has posted slight gains in Monday trading. In the North American session, the pair is trading just above the 114 level. On the release front, Japanese data started off the weak on a sour note. Core Machinery Orders declined 3.6%, well off the forecast of a 1.7% gain. Japan’s current account surplus dropped to JPY 1.40 trillion, short of the estimate of JPY 1.63 trillion. There are no major events in the US.
Japan’s economy has improved in 2017, buoyed by a stronger global economy. This has translated into increased demand for Japanese goods and this has boosted the manufacturing and export sectors. The Tankan Manufacturing Index jumped to 17 in the first quarter, its strongest showing since 2014. However, Core Machinery Orders is raising some concerns, as the indicator has posted two straight declines of 3.1% and 3.6%. We’ll get a look at Preliminary Industrial Production on Friday. The indicator recorded a strong gain of 4.0% in April, but the markets are braced for a sharp downturn in June, with an estimate of -3.3%. If manufacturing indicators continue to miss expectations, the yen could continue to lose ground.
The US wrapped up last week with key employment numbers, and the data was mixed. Nonfarm Payrolls rebounded in June, climbing to 222 thousand. This easily beat the estimate of 175 thousand and marked a 4-month high. However, wage growth remains soft, as Average Hourly Earnings was unchanged at 0.2%, shy of the forecast of 0.3%. Weak wage growth has remained soft throughout the first half of 2017, despite a tight labor market. With wages remaining stagnant, inflation is also mired at low levels. If inflation does not improve, the Federal Reserve may have second thoughts about a rate hike in December. Currently, the odds of an increase in December have dipped to 47%, as the markets clearly have their doubts that the Fed will press the rate trigger.