The Japanese yen continues to make inroads against the US dollar in Wednesday trading. In the North American session, USD/JPY is trading at the 111 line, as the yen hit a 4-month high earlier in the day. On the release front, Japan’s trade surplus soared to JPY 0.68 trillion, well above the forecast of JPY 0.55 trillion. As well, the BoJ released the minutes of its January policy meeting. In the US, housing and inflation data was a disappointment. Existing Home Sales dropped to 5.48 million, missing the forecast of 5.59 million. As well, the House Price Index fell to a flat 0.0%, short of the estimate of 0.4%. On Thursday, the US releases unemployment claims.
With little in the way of key fundamentals this week, the markets are focusing on comments from FOMC members who will be speaking this week, including Fed Chair Janet Yellen on Thursday. On Monday, Chicago Fed President Charles Evans said he expects the Fed to raise rates two more times this year. This echoes the Fed’s dot point plot as well as last week’s rate statement. Although three rate hikes in 2017 would be no mean feat, the markets would like four hikes, given the strong performance of the US economy. The Fed’s cautious approach has disappointed the markets, as the US dollar continues to post broad losses. The yen has taken full advantage, gaining 3.3 percent against the dollar since the Fed policy meeting last week.
Donald Trump continues to trumpet his "America first" slogan, and the US president’s protectionist stance has sent off alarm bells in Japan, which is heavily dependent on free trade. Immediately after taking office, Trump pulled the US out of the Trans-Pacific Partnership deal, an enormous free-trade agreement which Japan had enthusiastically supported. Japan has embarked on finding other trading partners in order to lessen its dependence on the US. Japanese Prime Minister Shinzo Abe met with EU President Donald Tusk on Tuesday, and the two discussed the Japanese-EU trade agreement, which was supposed to be finalized in 2015. With Europe still fuming over the ‘Brexit burn’ delivered by Britain, there is likely more appetite on the part of the EU to conclude an agreement with Japan, the world’s third largest economy.