USD/JPY has posted slight gains in Thursday trading. In the North American session, the pair is trading at 112.12, up 0.15% on the day. On the release front, the Bank of Japan maintained rates at 0.00%, but extended the timeline for its inflation target. In the US, indicators were mixed. Unemployment claims dropped to 233 thousand, marking a 9-week low. As well, the Philly Fed Manufacturing Index slowed down to 19.5, its weakest reading since November 2016.
There were no surprises from the Bank of Japan, which maintained its ultra-loose monetary policy. The bank kept interest rates at 0.00%, and maintained its inflation target at 2.0%. However, in light of persistently low inflation levels, the BoJ extended the timeline for the inflation target by one year, saying it expected inflation to reach 2% by fiscal year 2020. The BoJ has kept in place its inflation timeframe of 2% since 2013, and has had to postpone it six times, as the bank’s radical asset-purchase program has failed to end deflation. BoJ Governor Haruhiko Kuroda has insisted that the inflation target is feasible, and blamed low inflation on external factors, such as low oil prices. The bank was more upbeat in its economic forecast than in June, but with the bank stubbornly clinging to its inflation target, the markets don’t expect any withdrawal of stimulus until 2018 at the earliest.
It’s been another brutal week for the Trump administration, which is sorely in need of a legislative victory in Capitol Hill. One of Trump’s flagship projects has been replacing Obamacare, but that goal may have been dashed this week. Trump’s health care bill has stalled in the Senate before lawmakers even had a chance to vote on the proposal. With some conservative Republicans coming out against the bill, it’s questionable if the Republicans can pass another version before Congress takes a recess in August. Trump had promised to pass a health care before the summer break, so his credibility and popularity will take another hit if he’s unable to produce. Trump has been in office for six months, but has been unable to get Congress to pass any significant bills, even though the Republicans enjoy a majority in both houses of Congress. With this latest setback, there is growing skepticism as to whether Trump will be able to convince Congress to pass other key parts of his agenda – tax reform and fiscal spending. This paralysis on Capitol Hill has deepened investor pessimism about Trump’s legislative agenda and is weighing on the US dollar.
