USD/JPY has started the trading week with considerable losses. In Monday’s North American session, the pair is trading at 110.42, up 0.60% on the day. On the release front, it’s quiet start to the week. Japanese Tertiary Industry Activity dropped 0.1%, its third decline in fourth months. On Tuesday, Japan releases Preliminary Machine Tool Orders and PPI. The U.S. releases JOLTS Jobs Openings and Federal Reserve Chair Powell speaks at an event in Washington.

Japan is heavily reliant on trade with the U.S. and China, so the U.S-China trade war remains a significant concern for policymakers. Although the sides are talking, markets slipped after President Trump that he would not hold a meeting with President Xi prior to the March 2 deadline, when the U.S. is set to impose further tariffs if the sides fail to reach a deal. A third round of negotiations starts this week, with Treasury Secretary Mnuchin joining the talks later in the week. Still, with no signs of progress, there is growing alarm that the sides will not be able to reach a deal by March 2.

Japanese Prime Minister Shinzo Abe and the Bank of Japan have come under fire over inflation levels, which have stubbornly remained well below the target of 2.0%, despite the BoJ’s ultra-loose monetary policy. Spoiler alert – the bank won’t be making changes in monetary policy anytime soon. Last week, Abe defended the policy, saying it had helped create jobs and had benefited the economy. For its part, the BoJ has said that the inflation target remains elusive due to weak oil prices and the public’s deflationary mindset. Abe said that he “accepts” the BoJ’s explanation. In January, the BoJ maintained its monetary policy, but lower its inflation forecast, warning that protectionism and softer global demand posed significant risks to the Japanese economy.

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