The Japanese yen has lost ground in the Tuesday session. In North American trade, USD/JPY is trading at 107.45, up 0.48% on the day. On the release front, BoJ Core Inflation edged up to 0.8%, beating the forecast of 0.6%. In the US, durable goods reports were dismal. Core Durable Goods declined 0.3%, short of the estimate of +0.4%. This marked the second decline in three months. Durable Goods plunged 3.7%, missing the estimate of -2.4%. This reading was the sharpest decline since July. There was better news from CB Consumer Confidence, which improved to 130.8, well above the estimate of 126.2 points. In Washington, Federal Reserve Chair Jerome Powell made his first appearance before Congress. Later in the day, Japan releases Preliminary Industrial Production and Retail Sales. On Wednesday, the US releases Preliminary GDP, with an estimate of 2.5%.
All eyes were on Jerome Powell on Tuesday, and the new Fed chair played it safe in his written testimony before a congressional committee. Powell said that the Fed would maintain its policy of gradual rate increases, despite the stimulus of government spending and recent tax reform. Powell sounded optimistic about economic conditions, noting that the US economy was benefiting from the global recovery as well as changes in fiscal policy. Importantly, Powell did not address the question of an acceleration of rate hikes. Currently, the Fed has projected three rate hikes in 2018, with a March hike priced in at 87%, according to the CME’s Fed Watch. However, with inflation moving higher and the economy continuing to perform well, many analysts expect the Fed to raise rates four or more times this year. Any hints at an increased pace of rate hikes could send the US dollar broadly higher.
Bank of Japan Governor Harohiko Kuroda was recently reward with a second 5-year term, and has lost no time in defending his monetary policy. Speaking in parliament on Monday, Kuroda said he had no plans to conduct a review as to why the Bank’s massive stimulus program had failed to raise inflation to the target of just under 2 percent. Kuroda said it was “unfortunate” that the target had not been met, but argued that the BoJ’s “powerful” monetary easing had eliminated deflation. Kuroda’s comments were another clear message that the BoJ will not be reducing its massive stimulus program anytime soon. The Japanese economy has rebounded, but inflation has not kept pace, with BoJ core consumer inflation climbing just 0.8% in January.
