USD/JPY has steadied in the Wednesday session, as the pair trades at 109.70 in the North American session. In economic news, Japanese Core Machinery Orders bounced back with a gain of 1.5%, but this was well short of the forecast of 3.9%. On the inflation front, PPI improved to 1.4%, close to the forecast of 1.5%. In the US, there are no major events on the schedule. President Donald Trump will conduct an interview with the Fox Business Network, and will discuss health care, tax reform, and the crisis in Syria. On Thursday, the US releases three key indicators – PPI, unemployment claims and UoM Consumer Sentiment.
The yen has posted strong gains this week, as cautious investors have moved towards the safe-haven currency. USD/JPY has dropped 1.5 percent this week and is at its lowest level since November 2016. Escalating geopolitical concerns, particularly over Syria and North Korea, are weighing on the US dollar. The US bombed a Syrian military base last week, in response to a chemical attack by Syrian warplanes. Russia has strongly condemned the US move, chilling relations even further between the US and Russia. President Trump has also sent warships to the Korea peninsula, in a show of strength against North Korea, which continues to test ballistic missiles in defiance of the international community. If tensions escalate on either of these fronts, the yen rally could resume.
On Monday, Federal Reserve Chair Janet Yellen provided some insights into the Fed mindset. Yellen said that with the economy close to full employment and 2 percent inflation, Fed policymakers were looking to reduce the support that the central bank was providing the economy. The minutes of the March meeting indicated that the Fed plans to trim the $4.5 trillion balance sheet, which has ballooned as a result of the huge asset-purchase program which started in 2008. The Fed plans to raise rates twice more in 2o17, with the next rate expected in June. Yellen emphasized that the Fed’s policy stance is neutral, as interest rate increases will be gradual, given that the economy is growing at a moderate pace.
