The Japanese yen has posted small gains in the Wednesday session. In North American trade, USD/JPY is trading at 105.98, down 0.13% on the day. On the release front, the US ADP Nonfarm Payrolls report ticked higher to 235 thousand, easily beating the estimate of 199 thousand. Later in the day, Japan Final GDP for the fourth quarter, which is expected to slip to 0.2%. On Thursday, the US releases unemployment claims. Japan will publish Household Spending and the Bank of Japan will release a rate statement.
Will the Bank of Japan drop any hints about exiting it massive stimulus program? On Friday, BoJ Governor bolstered the yen when he said that the BoJ would consider exiting from its ultra-accommodative monetary policy if its inflation target of around 2020 was reached in early 2020. Kuroda’s remarks were unusual in that they mentioned a possible “exit” from its stimulus program, and this caught the markets off guard. The BoJ has been lagging behind the Fed and other central banks in winding up stimulus, but Kuroda added that the Bank would normalize policy if “economic conditions become favorable and our price target is achieved”. Any additional hints from Kuroda or his colleagues about normalization could strengthen the yen, which has run roughshod over the dollar in 2018, with gains of 6.3%.
In the US, tensions over proposed tariffs on steel imports continue to hurt the US dollar. President Trump appears set on applying stiff tariffs of 25% on steel, much to the consternation of the European Union and other US trading partners. However, there is plenty of domestic opposition to Trump’s plan, as Republican lawmakers, including House Speaker Paul Ryan, have come out strongly against the move. If Trump doesn’t back down, the Republicans could even resort to legislation to limit Trump’s authority on tariffs. The announcement of the tariffs last week sent the dollar broadly lower, and if the tariffs are introduced, negative investor sentiment could continue to weigh on the dollar.