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Yen Close to 2-week Low as BoJ Says Ultra-Easing to Continue


USD/JPY has pushed higher in the Monday session, as the pair trades at 111.30 in the North American session. On the release front, Japan's trade surplus improved to 0.13 trillion, but this was well short of the estimate of JPY 0.35 trillion. In the US, the only releases are speeches from FOMC members Dudley and Evans. On Tuesday, the BoJ will release the minutes of the April policy meeting.

The Bank of Japan sounded upbeat on the economy in its rate statement on Friday, but the positive spin didn't seem to impress the markets, as USD/JPY lost ground. The BoJ indicated that it had no plans to reduce its ultra-accommodative monetary policy, which includes negative (short term) interest rates and an asset-purchase program of JPY 80 billion/year. The rate statement took note of the stronger Japanese economy, stating that private consumption was showing "increased resilience". This was more hawkish than the April statement, when the bank said that private consumption was "resilient". The economy has shown improvement in 2017, as stronger global demand has boosted the Japanese manufacturing and export sectors. At the same time, inflation remains stubbornly low, well below the bank's target of 2.0 percent. At a press conference, BoJ Governor Haruhiko Kuroda would not say when the bank might exit its current monetary policy. There have been calls for the bank to lower its inflation goal, but Kuroda said that the ultra-loose policy would continue until the 2% target is achieved.

The US wrapped up the week on a sour note, as construction and consumer confidence reports missed expectations. Building Permits dropped to 1.17 million, its lowest level since August 2016. Housing Starts were also week, as the reading of 1.09 million marked the lowest since November 2016. There is concern that the soft construction numbers could weigh on second-quarter growth. There was more bad news from UoM Consumer Sentiment, which dipped to 94.7 in May, marking a 7-month low. This is significant, as it is the indicator's lowest reading since President Trump took office, and points to consumer unease with how the US economy is being handled. There are troubling signs that the June UoM report could be even lower, coming after the Comey testimony which has damaged Trump's credibility even further.

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