The Japanese yen is lower in Monday trade. In the North American session, USD/JPY is trading at 106.44, up 0.32% on the day. It’s very quiet on the release front, with no US events. In Japan, banks and stock markets are closed for Vernal Equinox Day. On Wednesday, the US releases Current Account and Existing Home Sales. All eyes will be on the Federal Reserve, which is expected to raise interest rates for the first time in 2018.
There were no surprises from the Bank of Japan, which published its summary of opinions from the March meeting on Monday. Members voted 8-1 to maintain its aggressive monetary easing program. Given that inflation is around 1%, well below the target of just below 2%, there are no plans for normalization in the near future. The summary was decidedly dovish, with members stating that if there was an increased risk of a delay in reaching the inflation target, additional easing would be needed. There have been concerns that the current framework is unsustainable, but until inflation levels move higher, it’s a safe bet that any changes to monetary policy will be mere tweaks, which are unlikely to shake up the markets.
The Federal Reserve is poised to raise interest rates on Wednesday, which would mark the first hike of 2018. According to the CME Group, the odds of a quarter-point raise stand at an impressive 94 percent. What can we expect from the Fed during the year? The current Fed projection remains at three hikes, but a robust US economy has raised speculation that the Fed could accelerate the pace to four hikes, which would be good news for the US dollar. Investors will be keeping a close eye on key US data, especially upcoming inflation indicators. If these numbers improve, we’re likely to see four rate hikes in 2018.