The Japanese has edged lower to start the week. In North American trade, USD/JPY is trading at 106.55, down 0.25% on the day. In economic news, Japanese BSI Manufacturing Index dropped sharply to 2.9, well short of the estimate of 10.3 points. There are no major US releases on the schedule. On Tuesday, the US publishes CPI reports and the BoJ releases the minutes of the January meeting.
The Bank of Japan held the course on interest rates at its Thursday meeting, as it kept short-term rates at -0.1% and 10-year government bonds at around zero percent. The Bank sounded optimistic about economic growth, which has been moderate but steady, thanks to a strong export sector. However, BoJ Governor Haruhiko Kuroda was decidedly dovish in his remarks, saying that the BoJ would consider further easing if inflation did not reach the bank’s target of around 2% by 2020. These comments mark a 180-degree turn from remarks just a week earlier, in which Kuroda talked about the possibility of an exit from stimulus, which sent the yen upwards.
In the US, employment numbers were a mix on Friday. Wage growth dropped to 0.1% in February, down from 0.3% a month earlier. This missed the estimate of 0.2%, and marked the lowest gain in four months. The news was much better from nonfarm payrolls, which soared to 313 thousand, crushing the estimate of 205 thousand. The mixed numbers have eased concerns about the Fed raising rates four times in 2018. At the same time, a rate hike is very likely at next week’s Fed meeting, with the CME Group pegging the odds of a hike at 86%.
Tensions have eased somewhat regarding the tariffs which President Trump imposed on Thursday. Trump has exempted Canada and Mexico from the tariffs, and has said that Washington could ease the duties on other countries as well. Importantly, is strong domestic opposition to Trump’s move, including senior Republican lawmakers who have said they will work to overturn the tariffs, which could spark an all-out trade war. So far, the markets are confident that a solution to the tariff tussle will be found.
