The Japanese yen has lost ground in the Wednesday session. In the North American session, USD/JPY is trading at 111.20. On the release front, US ADP Employment Change soared to 263 thousand, crushing the forecast of 184 thousand. The news was less positive in the services sector, as ISM Non-Manufacturing PMI dropped to 55.2, short of the forecast of 57.0 points. Later in the day, the Federal Reserve will release the minutes of its March policy meeting. There are no Japanese events on the schedule. On Thursday, the US releases the weekly unemployment claims report.
The Japanese economy has shown improvement in recent months, as the manufacturing and export numbers are pointing higher. At the same time, domestic consumption remains soft and inflation levels remain well below the BoJ’s target of 2.0% percent. The BoJ’s preferred inflation indicator, BoJ Core CPI, remains weak and dipped to 0.1 percent. With such low inflation levels, the Bank of Japan is unlikely to tighten monetary policy anytime soon. The Japanese consumer remains pessimistic about the economy, and Japanese Consumer Confidence is expected to confirm this sentiment, with the March reading standing at 43.5 points.
All eyes are on the Federal Reserve, which will release the minutes of its March policy meeting. At the meeting, the Fed raised rates by a quarter-point, to a range of 0.75%-1.00%. The markets will be paying close attention to the minutes, looking hints about the timing of the next hike, as well as the tone of the minutes are factors which could move the currency markets on Wednesday. The markets considered the rate statement overly cautious, and this sentiment sent the US dollar broadly lower in March. If the reaction to the minutes is one of disappointment, the dollar could again experience broad losses.
With the US economy continuing to perform well, the discussions around the monetary policy tables are not whether the Fed will raise rates, but how many hikes we will see in 2017. There is speculation about whether the Fed will hike rates two more times or three more times, and Fed policymakers seemed divided on this question. Last week, FOMC member called for three more hikes, saying the Fed should raise rates in June, September and December. Rosengren said that employment and inflation levels were close to the Fed’s targets, and that three additional hikes were needed in order to prevent the US economy from overheating. However, a majority of FOMC members are in favor of two more hikes this year.
