USD/JPY has ticked lower in the Monday session. In North American trade, USD/JPY is trading at 114.12, up 0.07% on the day. On the release front, the BoJ released the minutes of the October policy meeting. In the US, there are no major events. William Dudley, President of the New York Fed, announced his retirement. On Tuesday, Fed Chair Janet Yellen will speak at an event in Washington.
Bank of Japan Governor Haruhiko Kuroda spoke on Monday, after the release of the BoJ minutes. Kuroda expressed optimism that the improving economy will trigger higher inflation and move closer to the Bank’s target of 2 percent. Kuroda called the economic expansion "highly sustainable", and the markets took his optimism as a sign that the BoJ has no plans to inject further stimulus in order to beef up inflation. The minutes from the October meeting indicated that many of the board members were satisfied that the inflation target would be met under current policy.
The Federal Reserve remains in the news, after FOMC member William Dudley announced that he will retire in mid-2018. This move could have implications for monetary policy, depending on who will replace Dudley. A possible candidate is Kevin Warsh, who made the short list for the successor to Fed Chair Janet Yellen. Warsh is in favor of higher rates and favors less regulation of the banking sector.
On Thursday, US President Trump nominated Federal Reserve Governor Jerome Powell to head the Federal Reserve. Powell will take over in February 2018 when Yellen’s term expires. Powell is expected to hold the course with monetary policy, which has been marked by incremental and small rate hikes since December 2015. It’s all but a given that the Fed will raise interest rates in December, but the forecast for 2018 is less clear. If the US economy continues to grow at current levels, we could see up to three rate hikes next year. Powell will also be tasked with continuing to trim the Fed’s huge balance sheet of $4.2 billion. Last month, the Fed has started trimming the balance sheet by $10 billion/mth, but these cuts are expected to increase in size next year.
