USD/JPY is drifting in Wednesday trade, as the pair continues to have a quiet week. In the North American session, the pair is trading at 111.32, down 0.01% on the day. On the release front, Japanese indicators were mixed. Core Machinery Orders plunged 5.4%, its sharpest drop in four months. This was much weaker than forecast of -1.6%. There was better news from PPI, which climbed 0.8%, edging above the estimate of 0.7%. In the U.S., durable goods orders gained 0.4%, compared to an estimate of -0.5%. Core durable goods orders declined by 0.1% shy of the estimate of 0.1%. Inflation indicators remain low, as PPI and Core PPI both came in at 0.2%. On Thursday, the U.S. releases unemployment claims and new home sales.
Consumer inflation remains soft, which means there is little pressure on policymakers to raise rates in the near future. In February, Core CPI edged down to 0.1%, while CPI remained steady at 0.2%. Consumer inflation remains well below the Federal Reserve’s target of 2.0 percent, so there is little pressure on the Fed to raise rates anytime soon. Policymakers have been signaling that the Fed could stay on the sidelines until the second half of 2019, and this stance was underscored by Fed Chair Powell in a television interview on Sunday. Powell left no doubt about where the Fed stands, saying that the Fed would remain patient and was in no hurry to change interest rate policy. The dovish stance of the Fed could weigh on the dollar, as a lack of rate hikes makes the greenback less attractive to investors.
The Bank of Japan meets for a policy meeting later this week. Will we see more of the same from the BoJ? There is little pressure on policymakers to raise interest rates, especially with the Federal Reserve and ECB putting a freeze on rate hikes for the time being. However, the BoJ is concerned that the Japanese yen could rise if the global economy takes a downturn in 2019, which would weigh on exports and push inflation levels lower. If the yen does move higher, the bank will have to consider additional stimulus in order to keep the currency in check. This means that it’s unlikely that the safe-haven yen will be posting significant gains in the next few months, barring geopolitical turmoil.