USD/JPY has steadied in the Thursday session, after the yen posted strong gains in Wednesday trade. In the North American session, the pair is trading at the 111 level. On the release front, Japanese Preliminary GDP in the first quarter improved to 0.5%, edging above the forecast of 0.4%. US numbers were strong, as unemployment claims dropped to 232 thousand, lower than the forecast of 240 thousand. As well, the Philly Fed Manufacturing Index soared to 38.8, crushing the forecast of 19.9 points. In Washington, Treasury Secretary Steven Mnuchin will testify before the Senate Banking Committee on the rollback of the Dodd-Frank finance regulations.
It’s been an excellent week for the Japanese yen, which has recorded strong gains of 2.0 percent. The safe-haven yen has become a favorite for nervous investors, as the political turmoil which has gripped Washington has soured investors on the stock markets and the greenback. The yen’s gains mirror continuing trouble for the Trump administration, which is lurching from crisis to crisis. The latest development is that the Justice Department has agreed to appoint a former FBI director as independent counsel to investigate possible Russian involvement in the US presidential election as well as any connection between Trump and the Russians during the election campaign. On Tuesday, media reports surfaced that Trump asked former FBI director James Comey to end an investigation into ties between Russia and Trump’s former security adviser, Michael Flynn. Adding to Trump’s troubles, the president is under fire for passing classified intelligence to the Russian foreign minister. Trump initially denied the claim, but has since admitted that he did share intelligence with the Russians, arguing that he had acted within his rights. With the Trump administration frantically trying to douse political fires, investors are growing increasingly nervous that Trump’s plans for a stimulus package and tax reform will stall, and these jitters have sent stock markets downwards.
What’s next for the Bank of Japan? More of the same, according to BoJ Governor Haruhiko Kuroda. On Wednesday, Kuroda said that he was confident that the central bank could smoothly exit from its huge monetary stimulus at a time of its choosing, but noted that wages and inflation remained sluggish, despite a stronger economy. Kuroda added that the central bank had no plans to revise its monetary stance, and said that the Federal Reserve’s tightening stance would not affect the monetary stance of the BoJ. Stronger global demand has boosted Japan’s manufacturing and export sectors, but inflation is stuck around zero percent and consumer spending remains soft. We’ll get a look at Tokyo Core CPI and other inflation indicators next week. If the economy continues to improve and inflation numbers exceed expectations, the BoJ may have to revisit its ultra-loose monetary stance.
