USD/JPY has edged lower for a second straight day. In Tuesday’s North American session, the pair is trading at 111.50. On the release front, The BoJ released its minutes from the June policy meeting. In the US, CB Consumer Confidence jumped to 121.1., easily beating the estimate of 116.5 points. On Wednesday, the Federal Reserve will release a rate statement, and the US publishes News Home Sales.
The Bank of Japan minutes highlighted a split among members as to how much information the bank should disclose regarding a potential withdrawal from its quantitative easing program. Some members were in favor of full disclosure about the bank’s plans, while others said that publicizing information about an exit too soon could lead to market volatility. As expected, the BoJ maintained its ultra-loose policy, but there was an unexpected development, as the bank revised upwards its forecast for consumer consumption, for the first time in six months. An additional complication for policymakers is that the BoJ is now trailing other central banks with regard to tightening monetary policy – the Federal Reserve and Bank of Canada recently raised rates, and the ECB and BoE are contemplating tighter policy. This factor could weigh on the US dollar.
The Federal Reserve is in the spotlight, as it holds its monthly policy meeting on Tuesday and Wednesday, With the odds of a rate hike at just 3%, the markets will be focused on the Fed’s rate statement, which will be released on Wednesday. US numbers in the second quarter have been mixed, and inflation remains well below the Fed target of 2.%. Given these economic conditions, investors are unsure if the Fed will raise rates in December, with the odds currently at 47%, according to the CME Group. Analysts will be looking for nuances in the language of the statement, and a dovish tilt from the Fed could hurt the dollar and boost the red-hot euro. Another issue for Fed policymakers is the $4.2 trillion bond portfolio, a result of the aggressive quantitative easing program which was put in place after the financial crisis in 2008. In June, the Fed outlined plans to reduce its bloated balance sheet, with experts circling September as the start date of the reduction.
