It’s a quiet start to the week for the Japanese yen. In Monday’s North American session, USD/JPY is trading at 109.36, down 0.04% on the day. In the Asian session, the pair touched a high of 109.86, close to the symbolic 110 level. On the release front, Japanese inflation was stronger than expected. The Services Producer Price Index posted a strong gain of 0.9% in April, well above the estimate of 0.5%. This marked the highest gain since September. Later in the day, Japan releases the unemployment rate, which is expected to remain pegged at 2.5% for a third straight month. U.S markets are closed for Memorial Day, so there are no U.S events on the schedule. On Tuesday, the US releases CB Consumer Confidence and Japan will publish retail sales. As well, BoJ Governor Haruhiko Kuroda will address a conference in Tokyo.
The drama and uncertainty continue to swirl around the upcoming summit between President Trump and North Korean leader Kim Jong-un, which may or may not take place on June 12 in Singapore. Just a few days ago, Trump sent a letter to Kim, saying that Trump was canceling the much-anticipated meeting. However, the response from Pyongyang was restrained, and the White House has sent a team to Singapore in case the summit is back on. Meanwhile, the leaders of South Korea and North Korea met on the weekend. That meeting was completely unexpected and raises hopes of a breakthrough in the long conflict between the two Koreas.
The Bank of Japan remains officially committed to continuing its radical easing policy and negative interest rates until inflation rises closer to the bank’s target of around 2 percent. At the same time, BoJ policymakers have been looking for ways to move away from radical easing, in part because ultra-low interest rates have hurt the profits of financial institutions. Last week, BoJ Governor Haruhiko Kuroda promised that the bank would be transparent with regard to an exit from its radical easing policy, but added that the markets shouldn’t hold their breath for any dramatic announcements. Kuroda said that the BoJ would “communicate specifics on how we plan to exit once inflation accelerates toward 2 percent, but reiterated that there would be no departure from policy until the inflation target was met. That goal remains elusive, as underscored by recent inflation indicators. Last week, both BoJ Core CPI and Tokyo Core CPI dropped to 0.5%, missing their estimates of 0.6 percent.
