The Japanese yen is unchanged in the Thursday session. In the North American session, USD/JPY is trading at 110.39, up 0.04% on the day. On the release front, Japanese Revised Industrial Production fell to 0.5% but managed to beat the estimate of 0.3%. In the U.S, consumer spending reports were unexpectedly strong. Core Retail Sales climbed 0.9%, its strongest gain since November. This easily beat the forecast of 0.5%. It was a similar story for Retail Sales, which improved 0.8%, above the forecast of 0.4%. There was more good news on the employment front, as unemployment claims dropped to 218 thousand, below the estimate of 223 thousand. Later in the day, the Bank of Japan releases a rate statement, followed by a press conference with BoJ Governor Haruhiko Kuroda.
As widely expected, the Federal Reserve raised interest rates by a quarter-point, to a range between 1.75 percent and 2.00 percent. Fed Chair Jerome Powell sounded hawkish in his press conference, saying that the economy was performing well and that “overall outlook for growth remains favorable”. This message echoed the rate statement, in which policymakers said that “economic activity has been rising at a solid rate”, pointing to stronger consumer spending and business investment. What was may have been the most notable development was that the Fed rate projections were revised upwards, predicting two additional rate hikes in 2018, for a total of four hikes. Until now, the Fed had projected three rate hikes this year. This represents a nod to the strength of the U.S economy and could boost the dollar against its rivals.
The markets aren’t expecting any moves from the BoJ as it winds up its policy meeting on Thursday, as the bank is expected to hold the course with regard to fiscal and interest rate policies. Still, with the economy continuing to expand, the bank is expected to wind up its massive stimulus program. The magic question is when will the BoJ start to taper the program. Economists remain divided – some are forecasting that reductions in stimulus will begin in 2119, with others saying that won’t happen until 2020 or even later. Given the size of the stimulus program, any hints from the bank that it is considering a taper is sure to shake up the yen’s exchange rate. With inflation expected to remain below the BoJ target of around 2 percent for the near future, there isn’t much pressure on the BoJ to alter its current
All agreed inflation will linger well below the central bank’s elusive 2 percent target for some time.