USD/JPY: Dollar Edges Higher Ahead Of US Key Releases

 | Oct 03, 2013 10:36AM ET

The US dollar has posted modest gains against the yen in Thursday trading, reversing the trend we have seen for the past couple of days. USD/JPY is trading in the mid-97 range in the European session. In economic news, today’s highlights are ISM Non-Manufacturing PMI and Unemployment Claims. The markets are expecting weaker numbers from both indicators. Meanwhile, the government shutdown continues, as Congress has been unable to reach an agreement that would end the budget impasse. There are no Japanese releases on Thursday.

The US government remains paralyzed as the battle in Congress continues over the federal budget. With the government lacking funds to operate, it has been forced to close non-essential services and send almost a million government workers home. The Republicans and Democrats are entrenched in their positions, but public resentment may force the politicians to get their act together quickly. If things are resolved sometime this week, it will have been more of a nuisance than a crisis. However, a much more serious crisis could occur in two weeks if Congress doesn’t reach an agreement on raising the debt ceiling. If that happens, the Treasury would be unable to pay all of its bills, and the economic fallout could be tremendous. With all the bad blood between the Democrats and Republicans, reaching an agreement on the debt ceiling could prove a difficult task.

In Japan, there was good news earlier this week from the well-respected Tankan indexes. The Tankan Manufacturing Index jumped from 4 to 12 points, easily beating the estimate of 7 points. The Tankan Non-Manufacturing Index also rose, rising from 12 to 14 points, matching the forecast. This was the best showing for both indicators since November 2007, and is further indication that the Japanese economy continues to pick up steam.

The Federal Reserve surprised the markets in September when it didn’t taper QE, and the next dates to circle are October 29- 30, when the Fed holds its next policy meeting. Employment data will be an important factor in the Fed’s decision, and ADP Non-Farm Employment Change did not impress in September. The indicator dropped from 176 thousand in August to 166 thousand in September, a four-month low. The estimate stood at 177 thousand. Later on Thursday, we’ll get a look at Unemployment Claims. The markets are expecting a higher reading, which certainly does not bode well for a scaling down of QE later this month.