The Japanese yen has posted gains in the Thursday session. In North American trade, USD/JPY is trading at 108.62, down 026% on the day. On the release front, it’s a busy day. Japanese Housing Starts surprised with a gain of 0.3%, ending a nasty streak of nine straight declines. This easily beat the estimate of -8.8 percent. Later in the day, Japan releases Capital Spending, which is expected to drop to 3.2%, and Final Manufacturing PMI, which is forecast to fall to 52.5 points.
Is the Federal Reserve moving closer to a neutral monetary policy? Recent statements by FOMC policymakers appear to support such a conclusion, which would mean that the Fed would let the economy ‘ride on its own steam’ without intervening by adjusting interest rates. In the meantime, the Fed continues to project two more rate hikes in 2018, after raising rates by a quarter-point in March. The most likely dates for a rate hike are June and September. A fourth hike in December is possible, with a likelihood of about 40%. The minutes of the May meeting noted that policymakers would consider allowing inflation to rise above the Fed’s 2% target for a temporary period, which means that the Fed would not rush to raise rates based on the inflation target.
The Bank of Japan remains officially committed to continuing its radical easing policy and negative interest rates until inflation rises closer to the bank’s target of around 2 percent. At the same time, BoJ policymakers have been looking for ways to move away from radical easing, in part because ultra-low interest rates have hurt the profits of financial institutions. BoJ Governor Haruhiko Kuroda has promised that the bank would be transparent with regard to an exit from its radical easing policy, as Kuroda is well aware that even a slight change in fiscal or monetary policy can have a dramatic impact on the markets, a scenario that the BoJ is keen to avoid.
