The Japanese yen continues to have a quiet week. In Tuesday’s North American session, USD/JPY is trading at 108.48, down 0.23% on the day. In Japan, consumer confidence dipped to 42.7, shy of the estimate of 42.8 points. Later in the day, Average Cash Earnings, a key gauge of consumer spending, is expected to drop to 1.3%. In the U.S., JOLTS Job Openings was unexpectedly soft, dropping to 6.83 million. This marked a four-month low. On Wednesday, the Federal Reserve releases the minutes of its December meeting, when it raised rates.
After strong gains last week, the yen has taken a pause. Risk appetite took a hit after Apple stunned the markets with a revenue warning, and panicky investors responded by snapping up the safe-haven yen. However, investor optimism returned after dovish comments from Fed Chair Jerome Powell on Friday, who made a concentrated effort to ease the volatility which has rocked the markets in recent weeks. The markets had dropped sharply after the Fed’s December rate statement, which was less dovish than expected, as the Fed said it would continue raising interest rates in 2019. Powell tempered this stance with a more cautious outlook over rate policy, saying any rate decisions would be done prudently and with patience.
The Fed seems to be lowering expectations for additional rate hikes. Recent Fed forecasts have indicated two rate increases next year, but on Monday, Atlanta Fed President Raphael Bostic said that the economy would need only one rate hike. Some analysts have gone further, projecting a rate cut in 2019, which has put a chill on sentiment towards the U.S. dollar.
Will we see an easing of tensions in the U.S-China trade spat? Investors are pinning hopes on the outcome of this week’s meeting between U.S and Chinese officials. The teams are holding two days of talks in China, in an effort to reduce global trade tensions. The ongoing trade war has rocked equity markets, which had their worst year in 2018 since the 2008 financial crisis. The world’s two largest economies have engaged in tit-for-tat tariffs, and President Trump has threatened to impose additional tariffs on March 1 if the sides don’t reach a deal. If this set of talks points to progress, traders can expect risk appetite to improve, which could put a cap on the yen’s impressive rally.
