USD/JPY is trading quietly on Wednesday, as the pair trades at 112.20 in the North American session. On the release front, BoJ Governor Haruhiko Kuroda addresses the ECB Forum of Central Bankers in Sintra, Portugal. Later in the day, Japan releases Retail Sales, which is expected to drop to 2.6%. In the US, Pending Home Sales declined 0.8%, well short of the forecast of +0.9%. On Thursday, the US releases Final GDP and unemployment claims. It’s a busy day in Japan as well, with the release of Tokyo Core CPI and Household Spending.
If recent communications from the BoJ are any indication, investors should not expect anything dramatic when BoJ Governor Kuroda participates on a panel at the ECB Forum. The bank has been very consistent in its message that the ultra-loose accommodative policy will stay in place until inflation levels rise closer to the BoJ’s target of 2.0%. Despite years of stimulus from the BoJ, the inflation target remains elusive. However, rather than lower the target, the rigid bank has insisted that it’s only a matter of time before the improved Japanese economy triggers higher inflation. At the same time, the bank is mindful that there is growing speculation that better economic conditions could translate into the bank winding up its stimulus package. In the bank’s Summary of Opinion, released earlier this week, board members acknowledged that it was important for the BoJ to clearly communicate to the markets that the bank has no plans withdraw monetary stimulus anytime soon. Will Kuroda surprise the markets at the ECB forum and hint at a change in monetary policy?
It’s report card day for the US economy on Thursday, as the US releases Final GDP for the first quarter. Preliminary GDP, which was released in May, came in at 1.2%, and this is the forecast for the upcoming GDP report. Recent economic data has been softer than expected, notably construction and manufacturing reports. US durable goods releases were weak in May. Core Durable Goods broke a streak of two straight declines, but the weak gain of 0.1% missed expectations. Durable Goods declined 1.1%, its sharpest decline since June 2016. The slowdown in orders of business equipment could weigh on second quarter growth. Construction numbers have been mixed, and Pending Home Sales disappointed, posting a third straight decline in May. If Final GDP falls short of the modest estimate of 1.2%, the dollar could respond with losses.
