The Japanese yen has steadied in the Tuesday session, after posting gains on Monday. In North American trade, USD/JPY is trading at 109.36, up 0.22% on the day. In the US, JOLTS Jobs Openings slowed to 5.81 million, well off the estimate of 5.95 million. Later in the day, Japan releases Average Cash Earnings, which is expected to soften to 0.7%.
The Japanese yen had a strong start to the week, gaining 1.0% on Monday. The safe-haven yen took advantage of the massive sell-off on global stock markets, as risk appetite was nowhere to be found. The Dow Jones dropped 4.6% on Monday, and the downward trend has continued in the Asian and European markets on Tuesday. As investors head for the hills, analysts are scrambling to find the reasons behind the massive sell-off in the stock markets. Some experts are pointing to the changing of the guard at the Federal Reserve, with Jerome Powell replacing outgoing chair Janet Yellen on Saturday. However, Powell is not expected to change current monetary policy, so it’s unclear how Powell would have rubbed the markets the wrong way after just one day on the job.
A more likely explanation for the sell-off can be attributed to strong US nonfarm payrolls and wage growth reports, which were released on Friday. Investors fear that the sharp data could lead to higher inflation, which in turn would result in more rate hikes this year. Higher interest rates make the dollar more attractive for investors, at the expense of the stock markets. Adding to investors’ concerns, there are expectations that the ECB and possibly the Bank of Japan could raise rates late in 2018, which would push up the euro and yen and weigh on the stock markets.
The Bank of Japan continues to insist that it has no plans to raise interest rates in the near future. On Tuesday, BoJ Governor Haruhiko Kuroda reiterated this stance, saying that although economic conditions had improved, inflation levels were too low to justify reducing the stimulus program. Inflation is running at 1.0%, well below the BoJ target of just below 2%. Kuroda added that it would be “inappropriate” to raise the 10-year government bond yield target. Until inflation moves significantly higher, it’s a safe bet that the BoJ will not reduce stimulus or raise interest rates.
