The yen continues to lose ground against the robust US dollar. In the Wednesday session, USD/JPY is trading at 109.27, up 0.42% on the day. The pair has posted gains in 6 consecutive sessions, climbing 2.2% during that period. On the release front, Japanese All Industries Activity rebound with a gain of 0.4%, after a decline of 1.8% a month earlier. Still, this missed the estimate of 0.6%. There are no major US events on the schedule. Thursday will be much busier, with a host of key indicators. The US releases durable goods orders and unemployment claims. Japan will publish retail sales and CPI, and the BoJ will issue a policy statement.
The US dollar continues to climb against its rivals, buoyed by rising yields on US bonds, which have hit 4-year highs. On Wednesday, 10-year US Treasury notes have risen to 3.015%, and 2-year bonds have increased to 2.504 percent. With inflation appearing to be on the rise, there are stronger expectations that the Federal Reserve will raise rates four times in 2018, which is good news for the US dollar. With oil pushing above $70 a barrel, there are concerns that inflation will rise, which has pushed bond prices lower and yields upwards. The US currency has also benefited from a reduction in geopolitical risk, with an easing of tensions between North and South Korea, and a lull in the conflict in Syria.
The Japanese economy continues to expand, but inflation has lagged behind growth and remains well below the Bank of Japan’s target of around 2 percent. The markets have been speculating that stronger economic conditions might cause the BoJ to re-examine its ultra-accommodative monetary policy. However, on Monday, BoJ Governor Haruhiko Kuroda poured cold water over such sentiment, stating that in order to reach its inflation target, “the Bank of Japan must continue very strong accommodative monetary policy for some time”. The BoJ will issue an inflation forecast on Friday, with the bank expected to reiterate that the inflation target will be reached in fiscal year 2019. Kuroda’s dovish statement can be seen as an attempt to curb volatility in the yen following the release of the inflation forecast.
