It continues to be a quiet week for USD/JPY. In Wednesday’s North American session, the pair is trading at 111.41, down 0.02% on the day. Japanese banks are closed for a holiday. On Tuesday, the BoJ released the minutes of its January meeting.
The global trade war has weighed on the Japanese economy, and the government downgraded its outlook for the economy in the March report, for the first time in three years. The manufacturing and export sectors have been particularly hard-hit. The report added that current economic headwinds could continue for some time. Given the challenging economic conditions, the Bank of Japan is unlikely to change its ultra-accommodative policy anytime soon. The economy remains fragile, but could receive a big boost if the U.S. and China bury the hatchet and reach a deal which removes the tariffs which have damaged the Japanese economy.
All eyes are will be on the Federal Reserve, which holds a policy meeting on Wednesday. The Fed is widely expected to maintain the benchmark rate at a range between 2.25 – 2.50 percent. Investors will be expecting the Fed to play a dovish tune in the March rate statement. The Fed’s balance sheet will also be under scrutiny, with the policymakers expected to announce when they will stop reducing the $4 billion balance sheet. The Fed has been reducing assets by $50 billion a month, but there has been criticism that this tightening is choking economic growth. The Fed will also publish its new dot plot, which is used to convey its interest rate outlook.
