The Japanese yen has posted losses in the Tuesday session. In North American trade, USD/JPY is trading at 107.18, up 0.55% on the day. On the release front, there are no US events on the schedule. Later in the day, Japan will release Manufacturing PMI and All Industries Activity. On Wednesday, the Federal Reserve will release the minutes of its January meeting. As well, the US will release Existing Home Sales.
The yen looked sharp last week, as the currency gained 2.5% against the retreating dollar. However, the greenback has bounced back on Tuesday, pushing the yen above the 107 line. Have investors regained their appetite for risk? The stock markets could continue to set the direction for the yen – if the markets remain in green territory, the safe-haven yen could continue to lose ground.
Bank of Japan Governor Harohiko Kuroda has been reappointed to another 5-year term, the first time that a BoJ governor has been re-elected to a second term in 60 years. The move is a clear message from the Bank that it is no rush to make any change to the massive stimulus program, a key component of Abenomics. Kuroda has made it a priority to raise inflation, but this has proven a daunting task, as inflation is still below of the BoJ’s inflation target of 2%. In this period of strong volatility in the currency markets, Kuroda’s re-election may have a calming effect on the markets. What’s next for the BoJ? The yen has jumped 4.9% in 2018, and if the rise continues, policymakers could consider further easing in order to curb the yen’s value and protect the export sector, which has improved due to stronger global demand.
It’s been an busy start for Jerome Powell, who has just commenced his stint as chair of the Federal Reserve. Strong US data in recent weeks has raised speculation that the Fed may need to accelerate the pace of interest rate hikes in 2018. The Fed is currently projecting three rate hikes this year, but if inflation continues to move upwards, many analysts are expecting that the Fed could press the rate trigger four, or even five times in 2018. Meanwhile, concern over higher inflation and more rate hikes sent the stock markets into a frenzy earlier in February. Powell sought to reassure the markets that the Fed was monitoring the situation, but it’s doubtful that the Fed can do much to prevent volatility in the markets.
