USD/JPY: Yen Steady As Fed Holds The Course

 | Oct 31, 2013 02:46PM ET

USD/JPY has posted modest losses in Thursday trading. The pair is trading in the low-98 range in Thursday's European session. In economic news, ADP Non-Farm Payrolls slumped to a six-month low, as US employment numbers continue to disappoint. As well, the Federal Reserve released a statement that it would maintain QE at current levels, given the performance of the US economy. Thursday is busy, and the major release of the day is Unemployment Claims. In Japan, Average Cash Earnings bounced back in September, climbing to 0.1%, which easily beat the estimate of -0.5%. Housing Starts jumped 19.4%, an eleven-month high. There were no surprises as the Bank of Japan maintained its stimulus program.

The Federal Reserve wrapped up its policy meeting on Wednesday, the first meeting since Congress reached an agreement on the debt ceiling and the shutdown. As expected, the Fed said that it would maintain QE at current levels of $85 billion each month. However, the Fed's policy statement was less dovish than expected, as the Fed noted that the economy was expanding "at a moderate pace" and left the door open for QE tapering in December. However, the prevailing view in the markets is that short of a sharp turnaround in US numbers, QE tapering will be on hold until early 2014.

US employment data has struggled in recent releases, and there was no relief from ADP Non-Farm Payrolls on Wednesday. The key index dropped in September to 130 thousand, compared to 166 thousand the month before. This was well off the estimate of 151 thousand. It is the indicator's lowest level showing six months and underscores that the labor market is struggling to create new jobs. The markets will get another look at key employment data, with the release of Unemployment Claims later on Thursday. The markets are expecting an improvement from last week's reading. US releases other than employment indicators are also pointing downwards, as inflation, consumer confidence and housing releases have not looked sharp this week. If confidence in the US economy starts to weaken, we could see the US dollar lose ground.

In Japan, there were no unexpected moves from the BOJ, which said in a policy statement that it would continue its monetary easing policy. The Bank has been expanding the monetary base by 60-70 trillion yen each year, and plans to maintain this level. The Bank forecasts that inflation will rise to 1.9% in 2015, which is within the BOJ's target of 2.0%. The government's radical fiscal and monetary policy has created inflation after years of deflation, which has hobbled the economy. However, the Japanese yen has dropped sharply as a result, as the currency trades close to the 100 level.