Yen Rises Ahead of Bank of Japan

US dollar struggles at start of a busy week

The US dollar is lower against most majors after scoring huge gains last week. Political uncertainty as the FBI investigation on Russian collusion in the Presidential elections as well as Fed Governor Jerome Powell as a lead candidate for the U.S. Federal Reserve Chair position have put downward pressure on the currency ahead of a week that features various central banks, included the Fed and will end with the release of the U.S. non farm payrolls (NFP) on Friday.

The Bank of Japan (BOJ) will release its monetary policy statement near midnight Monday, October 30 EDT to be followed by the central bank’s outlook report and a press conference Tuesday, October 31 at 2:30 am EDT. Investors are not expecting a change in rates and the stimulus program, but see room in the economic outlook to introduce downgraded inflation expectations.

The majority win in the Japanese snap elections positions Shinzo Abe’s party to continue pushing a loose monetary policy. The Bank of Japan (BOJ) Governor Haruhiko Kuroda was one of the most influential recruits five years ago, and with the electoral win he is thought to have another five year term at the head of the central bank.

The USD/JPY lost 0.43 percent on Monday. The currency pair is trading at 113.15 ahead of the Bank of Japan (BOJ) statement and the press conference hosted by Governor Kuroda. Political stability has been achieved with the victory of the LDP securing another five years in which to fulfill Prime Minister Abe’s lofty inflation ambitions.

Earlier today MarketPulse analyst Kenny Fisher pointed out the release of a strong economic indicator in Japan:

On the release front, Japanese Retail Sales posted a strong gain of 2.2%, just shy of the estimate of 2.3%. In the US, Personal Spending gained 1.0%, above the forecast of 0.8%. On Tuesday, the Bank of Japan releases its monetary statement. The US will publish CB Consumer Confidence.

All eyes are on the BoJ, which will release a rate statement on Tuesday. The Bank is expected to hold course with its ultra-accommodative monetary policy, and also maintain its inflation forecasts. Policymakers appear resigned to persistently weak inflation – at the September meeting, the BoJ stated that it did not expect inflation to reach the Bank’s 2 percent target until fiscal year 2020. BoJ Governor Haruhiko Kuroda has long insisted that the bank will not taper its stimulus program until inflation moves higher.

Despite weak inflation and wage growth, there has not been much pressure on the Bank to change policy, as the Japanese economy has performed well in 2017. GDP expanded at an annualized 2.5 percent in the second quarter, buoyed by solid numbers from the manufacturing and export sectors. Consumer spending has improved, and retail sales in September improved 2.3%, compared to 1.7% a month earlier. Retail sales have risen for 11 consecutive months, as consumers appear more confident in the economy and have opened their purse strings.

The U.S. Federal Reserve will begin its two day meeting just as the Bank of Japan (BOJ) will have finished theirs. The Fed is also not expected to change the benchmark rate in November, with the market pricing in a almost 99 percent in December. With little data to start the trading the week the USD could not mount a defence against more political uncertainty in Washington. Employment is expected to rebound after the impact of the hurricane season, which could focus the attention of the market back to fundamentals.

Market events to watch this week:

Monday, October 30
Midnight JPY Monetary Policy Statement
Tuesday, October 31
Tentative JPY BOJ Outlook Report
Tentative JPY BOJ Policy Rate
2:30 am JPY BOJ Press Conference
8:30 am CAD GDP m/m
10:00 am USD CB Consumer Confidence
5:45pm NZD Employment Change q/q
Wednesday, November 1
5:30 am GBP Manufacturing PMI
8:15 am USD ADP Non-Farm Employment Change
10:00 am USD ISM Manufacturing PMI
10:30 am USD Crude Oil Inventories
2:00 pm USD FOMC Statement
2:00 pm USD Federal Funds Rate
8:30 pm AUD Trade Balance
Thursday, November 2
5:30 am GBP Construction PMI
8:00 am GBP BOE Inflation Report
8:00 am GBP MPC Official Bank Rate Votes
8:00 am GBP Monetary Policy Summary
8:00 am GBP Official Bank Rate
8:30 am GBP BOE Gov Carney Speaks
8:30 am USD Unemployment Claims
8:30pm AUD Retail Sales m/m
Friday, November 3
5:30 am GBP Services PMI
8:30 am CAD Employment Change
8:30 am CAD Trade Balance
8:30 am CAD Unemployment Rate
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change
8:30 am USD Unemployment Rate
10:00 am USD ISM Non-Manufacturing PMI

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza