The Japanese yen is showing little movement in the Wednesday session. Currently, USD/JPY is trading at 112.20. On the release front, it’s a very light day. Japanese Economy Watchers Sentiment slipped to 49.8, pointing to pessimism among workers about economic conditions. There are no major US events on the schedule. On Thursday, the US releases the weekly unemployment claims report, which is expected to rise to 249 thousand.
Japanese Prime Minister Shinzo Abe will meet with President Trump in Washington on Friday, and the Japanese are hoping to sooth some ruffled furthers on the American side. Trump recently accused Japan of unfair trade practices in its ultra-loose monetary policy, which has kept the yen at low levels and helped boost Japanese exports. The Japanese have argued that they are not targeting the yen’s value, but have their work cut out for them in trying to assuage Trump, who hasn’t hesitated to fire verbal salvos at the United States’ closest trading partners. Japan is heavily reliant on its export sector, and Abe will be hoping that Trump’s protectionist rhetoric does not translate into actual moves against Japan, which can ill afford a trade war with the US.
Just a few weeks on the job, President Donald Trump continues to create controversy and his protectionist rhetoric is not endearing him to the markets. Moreover, the lack of an economic policy from the new administration is a major source of concern and the the post-election euphoria which sent the markets higher has dissipated. The Federal Reserve, which had trumpeted that it was planning a series of hikes in 2017 (the same sound track we heard at the start of 2016), was more cautious in its recent rate statement and is expected to adopt a wait-and-see attitude in the coming months. If the economy continues to grow at a brisk clip, there is a strong likelihood of another rate hike in the first half of 2017, which is bullish for the dollar. On the other hand, if Trump makes good on his promises to "make America first" and implement protectionist policies, the greenback could lose ground against major currencies such as the yen.
