The Japanese yen has posted gains in the Tuesday session. In North American trade, USD/JPY is trading at 111.31, up 0.18% on the day. In the US, CB Consumer Confidence jumped to 129.5, above the estimate of 123.9 points. Fed Chair Designate Jerome Powell is testifying at his confirmation hearing before the Senate Banking Committee. Later, in the day, Japan releases Retail Sales, which is expected to slow to 0.1%. On Wednesday, the US publishes Preliminary GDP and Pending Home Sales and Janet Yellen will testify before a congressional committee.
The changing of the guard at the Federal Reserve has kicked off on Tuesday, as Jerome Powell is testifying before the Senate Banking Committee. Investors will be listening closely, as Powell faces questions from lawmakers about his plans as head of the powerful central bank. Powell is widely expected to maintain Janet Yellen’s cautious monetary stance, which has been marked by small, incremental rate hikes. Powell inherits an economy that is in excellent shape, but persistently low inflation remains a nagging problem. Fed policymakers have differing views on what to do about inflation, with some members proposing that the Fed drop its 2 percent target, in favor of a "gradually rising path" for prices. The Fed remains confounded by low inflation and wage growth, despite a labor market that is at full capacity. Still, the Fed will likely pull the rate trigger next month, and could raise rates up to 3 more times in 2018 if the economy continues to expand at its current pace.
With the Japanese economy showing moderate growth, there has been speculation that the Bank of Japan is giving some thought to tapering its massive stimulus program. Any tapering to the program could give a significant boost to the yen, so the markets are closely monitoring BoJ statements and comments from BoJ policymakers, looking for clues. However, a stronger yen would hurt exports, which has been a catalyst for the stronger economy. Inflation and wage growth remain low, and if we are to take BoJ Governor Haruhiko Kuroda at his word, the Bank will not taper stimulus before inflation moves closer to the BoJ’s target of around 2 percent.
