It continues to be a quiet week for USD/JPY, as the pair is currently trades at 112.20 in the North American session. On the release front, US Current Account posted a deficit of $112 billion, well below the estimate of $129 billion. FOMC member William Dudley spoke at an event in New York City, but did not discuss monetary policy. Later in the day, Japan will release the minutes of its January policy meeting. We’ll also get a look at Trade Balance, with the market expecting the trade surplus to jump to JPY 0.55 billion.
With the Fed’s quarter-rate point behind us, what’s next for Janet Yellen & Co.? The CME Group has priced a rate hike in May at just 6%, while a June move is priced at 54%. With a dearth of key fundamentals in the US this week, the markets are left to monitoring comments from FOMC members who will be speaking this week, including Fed Chair Janet Yellen on Thursday. On Monday, Chicago Fed President Charles Evans said he expects the Fed to raise rates two more times this year. This echoes the Fed’s projection in its rate statement. Although three rate hikes in 2017 would be no small feat, market players want four hikes, and have reacted with disappointment to the Fed’s more cautious approach. This has sent the US dollar lower, and the Japanese yen took full advantage, gaining 1.9% last week.
Donald Trump’s protectionist stance has sent off alarm bells in Japan, which is heavily dependent on its export sector. Immediately after taking office, Trump pulled the US out of the Trans-Pacific Partnership deal, an enormous free-trade agreement which Japan had enthusiastically supported. Japan has embarked on finding other trading partners in order to lessen its dependence on the US. Japanese Prime Minister Shinzo Abe met with EU President Donald Tusk, and the two discussed the Japanese-EU trade agreement, which was supposed to be finalized in 2015. With Europe still fuming over the ‘Brexit burn’ delivered by Britain, there is likely more appetite on the part of the EU to conclude an agreement with Japan, the world’s third largest economy.
