USD/JPY Fundamental Daily Forecast – Hits Session Low After Release of U.S. Tax Code Overhaul

The Dollar/Yen hit a session low on Thursday after Republicans in the U.S. House of Representatives released proposals to overhaul the tax code.

At 1734 GMT, the USD/JPY is trading 113.8535, down 0.0355 or -0.03%. Earlier in the session, it a high of 114.1940 before collapsing to 113.5690.

A summary of the document revealed that the plan calls for slashing the corporate tax to 20 percent from 35 percent and reducing the number of tax brackets for individuals.

The dollar weakened because the initial proposal is not likely to pass into law quickly and investors believe that it’s not enough to be meaningful. Some are doubtful that it’ll have any significant impact on the overall GDP of the country.

Over the long-run, cutting taxes would increase spending, drive inflation and U.S. interest rates higher, and make the U.S. Dollar more attractive. However, since the process to become law may be lengthy, the proposal is having no bullish impact on the dollar at this time.

In other news, the Challenger Job Cuts report came in at -3.0%. This report represents the change in the number of job cuts announced by employers. ‘Actual’ less than ‘Forecast’ is good for the U.S. Dollar. Last month, the report came in at -27%.

Weekly Unemployment Claims were 229K, better than the 235K estimate and 234K previous reading.

Preliminary Nonfarm Productivity was 3.0%. This was slightly worse than the 2.5% forecast. The previous number was raised to 1.5%.

Preliminary Unit Labor Costs were 0.5%, matching the forecast. The previous report was revised downward to 0.2%.

In other news, Fed Governor Jerome Powell delivered a speech Thursday morning but dropped no hints about his impending appointment to lead the central bank.

In his speech, Powell discussed Libor, or the rate that banks charge each other for short-term loans. Wall Street is transitioning away from the rate, a process that Powell said will be costly but important for the financial system’s integrity.

“So, while much has been done, there is more still to do. I have been heartened in seeing that many participants are already confronting these issues,” Powell said in his prepared remarks.