THE TAKEAWAY:Japanese labor market improves, household spending declines > Industrial production slips > could provide support for further BoJ stimulus > USD/JPY Edges Higher

The Japanese Yen remained relatively flat against the US Dollar on mixed economic data. The labor market in Japan improved with unemployment beating expectations at 3.9 percent, the lowest since October 2008. However, household spending declined 0.4 percent year-over-year and missed estimates of growing 1.4 percent. This data could provide some evidence that the Bank of Japan’s massive stimulus program is working, but remains stubborn to show a clear direction.

Disappointing industrial production data released 20 minutes after moved the USD/JPY higher. Output declined 3.3 percent month-over-month, the largest drop since March 2011. Although last week’s improved CPI number may reduce the central bank’s scope for further easing, investors likely weighed this data against Bank of Japan Governor Kuroda’s comment yesterday on gradual improvements in capital expenditure following inflation. The data could support additional scope for stimulus from the BoJ to encourage economic growth.

Movement in the pair will also likely come from the number of high risk U.S. events. Second quarter U.S. GDP data scheduled for release on Wednesday at 12:30 GMT and Non-Farm Payrolls data on Friday will help the Federal Reserveevaluate its progress in fulfilling its mandate. As such, traders will likely weigh their expectations for Fed policy on these data. FOMC is also scheduled for a policy meeting on Wednesday where its rhetoric could fuel investor speculations on the timetable for reducing quantitative easing.

USD/JPY (5-Minute Chart)

Source: FXCM Marketscope

Jimmy Yang, DailyFX Research Team

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