The Japanese yen continues to post gains. In North American trade, USD/JPY is trading at 105.96, down 0.34% on the day. In the US, unemployment claims dropped to 226 thousand, just below the estimate of 226 thousand. Manufacturing reports were mixed. The Philly Fed Manufacturing Index dropped to 22.3, missing the forecast of 23.1 points. There was better news from the Empire State Manufacturing Index, which jumped to 22.5, crushing the estimate of 14.9 points. This marked a 5-month high. Japan will release Revised Industrial Production, with the markets braced for a sharp decline of 6.6%. On Friday, the US releases three key events – Building Permits, Housing Starts and Preliminary UoM Consumer Sentiment.
With the Japanese economy continuing to show improvement, investors are carefully following the Bank of Japan, looking for hints regarding any change in monetary policy. Earlier in the week, the BoJ released the minutes of its January policy meeting, but the markets were more interested in what Bank of Japan Governor Haruhiko Kuroda had to say. The minutes indicated that some policymakers expressed concern about the drawbacks of the Bank’s massive monetary stimulus program, such as hurting the profits of financial institutions. However, most members were of the view that the Bank should continue its radical easing stance. Speaking after the release of the minutes, Kuroda said he was confident that the BoJ would exit its ultra accommodative monetary policy, but qualified his remarks by adding that it was too early to get into specifics, given that inflation remained well below the Bank’s target. Kuroda is playing his cards very cautiously, using the E- word (exit), while at the same time saying that it is much to early to discuss any change in policy until inflation moves closer to the target of around 2 percent.
The Federal Reserve is widely expected to raise interest rates next week, which would mark the first hike of 2018. According to the CME Group, the odds of a quarter-point raise stand at 89 percent. What can we expect from the Fed during the year? The pressing question is how many rate hikes will we see in 2018. The current Fed projection remains at three hikes, but the superb nonfarm payrolls report last week has raised speculation that the Fed could accelerate the pace to four hikes, which would be good news for the US dollar. Investors will be keeping a close eye on key US data, especially inflation indicators. If these numbers improve, we’re likely to see four rate hikes in 2018.
