USD/JPY is showing little movement in the Tuesday session, as the pair trades at 111.50 in North American trade. On the release front, the BoJ will release the minutes of its April policy meeting. In the US, the current account deficit increased to $117 billion, but this beat the forecast of $124 billion. On Wednesday, the US will release Existing Home Sales and Crude Oil Inventories.
Japan’s economy has shown improvement in 2017, as stronger global economic conditions have increased demand for Japanese exports. This in turn has buoyed the manufacturing sector. Still, inflation remains well below the BoJ’s target of 2.0%, and this means that the bank will likely stick to its guns and maintain its ultra-accommodative monetary policy, which includes negative (short term) interest rates and an asset-purchase program of JPY 80 billion/year. The bank acknowledged the stronger economy in last week’s rate statement, saying 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. There have been calls for the bank to lower its inflation goal, but BoJ Haruhiko Kuroda has insisted said that the ultra-loose policy would continue until the 2% target is achieved. The IMF is closely monitoring the BOJ’s monetary policy, and on Monday, David Lipton, the IMF’s first deputy managing director said that it supported the BoJ’s target of 2.0%. At the same time, Lipton expressed doubt as to whether the bank’s current policy would push inflation up to this level.
The Federal Reserve raised rates last week, but what surprised the markets was the upbeat tone of the rate statement. Fed policymakers noted that the labor market remained strong, and dismissed weak inflation levels as being temporary. On Monday, Federal Reserve of New York President Charles Dudley continued the upbeat message, cautioning the Fed against halting its current tightening cycle. Dudley said that the tight labor market should lead to higher wages, which in turn would push inflation to the Fed’s target of 2.0%. If the Fed continues to send out a hawkish message, the odds of a rate hike in December (or even in September) are likely to increase.