The Japanese yen has recorded considerable gains in the Thursday session. In North American trade, USD/JPY is trading at 107.03, down 0.68% on the day. On the release front, US unemployment claims dropped to 222 thousand, easily beating the estimate of 230 thousand. In Japan, the focus will be on inflation indicators, with the release of National Core CPI and the Services Services Producer Price Index. Both indicators are expected to post gains of 0.8%.
The Federal Reserve released the minutes of its January meeting, and as expected, the benchmark rate was left unchanged at a rate between 1.25% and 1.50%. The message from policymakers was that further rate hikes could be in the cards, due to strong economic conditions in the US. In the words of the minutes, policymakers “anticipated that the rate of economic growth in 2018 would exceed their estimates of its sustainable longer-run pace and that labor market conditions would strengthen further”. At the December meeting, the Fed penciled in three rate hikes in 2018, and there was no reference to a quicker pace of hikes in the January minutes. As for inflation, the minutes did not reveal any concern. Most Fed members were of the opinion that inflation would rise towards the Fed target of 2 percent.
The Bank of Japan has been holding a steady course with monetary policy, and we can expect more of the same with the re-election of Governor Harohiko Kuroda to a second 5-year term. The move is also a clear message from the BoJ 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. The yen has jumped 5.0% in 2018, and if the rise continues, policymakers will have to consider further easing in order to curb the yen’s value and protect the export sector, which has improved due to stronger global demand.
