USD/JPY: US Manufacturing Slump and Japan’s Lower Sales Tax Boosts the Yen

Capital Spending in Japan plunged to 2.2 percent in Q3 from the 3.7 percent forecast and the 7.7 percent reading in Q2. The fall of the nation’s Core CPIs for a sixth straight month in the year to October, showed that the economy remains trapped in a deflationary cycle. The long and painful road ahead to resolve the decrease in prices had spooked investors, leading to the decline of private sector sentiment followed by the dive of Capital Spending and thus making the Japanese yen trounce by 32 pips versus the American dollar in Friday’s Asian session.

The Yen however is anticipated to immense in today’s exchanges as a Japanese political party promised buoyant consumer spending from propositions of lower sales tax rates. The pledge of Shiga Gov. Yukiko Kada sees an invitation of investors both domestic and foreign as company profit are expected to be maximized in production, while households’ purchasing power are to strengthen, resulting to an amplified positive contagion and the growth of the economy.

Meanwhile, the Institute for Supply Management Manufacturing Purchasing Managers’ Index is expected to decrease, reflecting the deterioration of consumer spending as unemployment continues to remain high. The manufacturing gauge is perceived to drop to 51.5 points in November from 51.7 points in the previous month. Manufacturing ISM Report On Business showed an improvement at the start of Q4 even as the Philly Fed manufacturing survey deteriorated in November. The decline of the measurements of the US manufacturing still mirrors the negative impacts of the recent hurricane. As the US economy tries to recovery from a slump, a sell position is estimated apt for the USDJPY pair in today’s Asian trades.

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