USD/JPY has posted gains in the Wednesday session, continuing the upward trend which marked Tuesday trading. In the North American session, the dollar is trading at 111.50. The Japanese yen has dropped 1.6 percent since Monday and is trading at 4-week highs. In economic news, the sole US event is Crude Oil Inventories, which is expected to post a decline of 1.1 million barrels. Later in the day, the BoJ releases its monetary policy statement. On Thursday, the US releases durable goods orders and unemployment claims, while Japan publishes key consumer data – Household Spending and Tokyo Core CPI.
The Bank of Japan is expected to hold the course and maintain interest rates at -0.10%. The negative rates are part of the BoJ’s ultra-loose monetary policy, which is expected to continue until inflation levels move closer to the central bank’s target of around 2 percent. Japan’s economy has improved in recent months, as a weak yen and stronger global demand have boosted exports and revitalized the manufacturing sector. At the same time, consumer inflation and spending data remains weak, which has weighed on the economy. Household Spending and Tokyo Core CPI, which are key consumer indicators, are both expected to post declines. If these readings are softer than expected, the dollar’s rally against the yen could continue.
President Donald Trump has set his sights on tax reform, and is expected to make a key announcement on Wednesday. Of particular interest to the corporate sector, Trump is expected to propose reducing the corporate tax rate from 35% to 15%, and lowering the tax on multinationals’ overseas profits from 35% to 10%. Global markets are eagerly awaiting Trump’s statement, but if the president is short on details, as has often been the case, the ensuing disappointment from investors could send the dollar downwards.
US consumer confidence levels remain high, but there was some disappointment as CB Consumer Confidence dropped to 120.3 in April, missing the estimate of 123.7. The softer than expected reading boosted the euro in the Monday session. What is troubling analysts is that strong consumer confidence numbers have not translated into increased consumer spending, a key component of economic growth. This trend has been labeled the "hard/soft discrepancy" (confidence being ‘soft’, while actual spending being ‘hard’). This was underscored in March retail sales numbers, which came in at a flat 0.0%, shy of the forecast. Next up is Preliminary GDP on Thursday, which is expected at 1.3 percent. An unexpected GDP reading could have a sharp impact on EUR/USD.
