After strong gains on Wednesday, the Japanese yen has paused in light holiday trade on Thursday. In the North American session, USD/JPY is trading at 111.26, up 0.05% on the day. Traders can expect little movement from the pair throughout the day, as Japanese and US markets are closed for public holidays. There are no US events on the calendar. Later on Thursday, Japan releases Flash Manufacturing PMI, with an estimate of 52.6 points.
There were no surprises in the Federal Reserve minutes from its last meeting, which were released on Wednesday. The minutes indicated that policymakers expected the U.S economy to continue showing strong growth, and predicted that interest rates will be raised in the "near term". The members discussed the vexing question of why inflation has been persistently low (no quick-fix solution was provided), with most agreeing that a tight labor market should lead to higher inflation levels. Although policymakers did not provide further hints about the timetable of a rate hike, the markets remain convinced that additional rates are imminent. The odds of a rate hike in December are 91%, and the odds a January raise are at 89%.
The Bank of Japan has declared more than once that it will hold the course on its massive easing program, even though the Japanese economy has rebounded in 2017, in large part due to stronger global demand for Japanese products. Recently, however, there have been some slight hints that the Bank of Japan might be having second thoughts. BoJ Governor Haruhiko Kuroda recently acknowledged that ongoing easing could hurt bank margins. Kuroda said that BoJ needed to pay attention to the "reversal rate", whereby a rate cut by the central bank discourages bank lending. Still, most economists don’t expect a cutting of stimulus until in the near future, so any hints of a change in the status quo would likely shake up the Japanese yen.
