USD/JPY has posted gains in the Thursday session, as the pair trades just below the 111 level in the North American session. On the release front, Japanese Consumer Confidence improved to 43.9, above the forecast of 43.5 points. In the US, unemployment claims dropped to 234 thousand, its lowest level in five weeks. On Friday, US job numbers will be in focus, with the release of three key indicators – Nonfarm Employment Change, Average Hourly Earnings and the unemployment rate.
The Japanese consumer remains pessimistic about the economy, as the latest consumer confidence survey came in at 43.9 points for March. Although this reading improved over the February release of 43.1, a release below the 50-point level points to pessimism. There are some bright points in the economy, as 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 inflation at low levels, the Bank of Japan is in no rush to tighten monetary policy.
There were no surprises from the minutes of the Fed March policy meeting. At that meeting, the Fed raised rates a quarter-point to 0.75%, but the dovish rate statement disappointed the markets, triggering broad losses for the US dollar. In the minutes, policymakers noted upside risk to the US economy, but remained divided on whether inflation will rise to the Fed target of 2.0%. Most policymakers were in favor of taking steps to trim the $4.5 trillion balance, which has ballooned since the Fed implemented its aggressive quantitative easing program back in 2008. So what’s next for the Fed? According to the CME’s Fed Watch, the odds of a rate hike at the May meeting are just 5 percent, while the likelihood of a rate hike in June stand at 63 percent. Fed policymakers appear divided on how many more times the Fed will press the rate trigger. Last week, FOMC member Eric Rosengren 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 just two more hikes this year.
