The Japanese yen has ticked lower in the Wednesday session. In North American trade, USD/JPY is trading at 107.58, up 0.23% on the day. In Japan, Flash Manufacturing PMI dipped to 54.2, missing the estimate of 55.2 points. All Industries Activity slowed to 0.5%, matching the forecast. In the US, the key event is the Federal Reserve minutes from the January meeting. Earlier, Existing Home Sales disappointed, dropping to 5.38 million. This was well short of the estimate of 5.61 million. On Thursday, the US releases unemployment claims and Japan will release two inflation reports.
The yen posted sharp gains last week, as the currency gained 2.5% against the retreating dollar. However, the US dollar has rebounded this week and climbed to 107.90 earlier on Wednesday, marking a 1-week high. Have investors regained their appetite for risk? US markets have gained ground this week, pushing the US dollar higher. The stock markets could continue to set the direction for the safe-haven yen – if the markets remain in green territory, the yen could continue to lose ground.
The Bank of Japan is holding a steady course when it comes to top management. 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.
The Federal Reserve will be in the spotlight on Wednesday, with the release of the minutes from the January meeting, the last to have been chaired by Janet Yellen. The markets will be looking for hints regarding future rate policy, and any inkling of plans to raise interest rates more than three times in 2018 could trigger volatility in the currency markets as well as stock markets. Recent US numbers have been strong, and inflation indicators have been pointing upwards. This has raised concerns that the Fed may accelerate its pace of hikes, which triggered a sharp correction in global stock markets. The new chair of the Fed, Jerome Powell has tried to reassure the markets that the Fed is monitoring the situation, but it’s doubtful that the Fed can do much to prevent volatility in the markets.
