The Japanese yen has edged lower in the Monday session. In North American trade, USD/JPY is trading at 105.96, up 0.20% on the day. On the release front, the sole Japanese event is the 30-year bond yield. In the US, the ISM Non-Manufacturing PMI slowed to 59.5, but managed to beat the estimate of 58.9 points.
It was a good week for the Japanese yen, which improved 1.3% on the week. The currency received a boost after Bank of Japan governor Haruhiko Kuroda said that the BoJ would consider exiting from its ultra-accommodative monetary policy if its inflation target of around 2020 was reached in early 2020. Kuroda’s remarks were unusual in that they mentioned a possible “exit” from its stimulus program, and this caught the markets off guard. The BoJ has been lagging behind the Fed and other central banks in winding up stimulus, but Kuroda added that the Bank would normalize policy if “economic conditions become favorable and our price target is achieved”. Although inflation remains well below target, any further hints at normalization could strengthen the yen.
The US dollar was broadly lower last week, after President Trump sent shock waves through the markets when he announced stiff tariffs on steel and aluminum, in order to protect domestic producers. Under the new scheme, foreign steel will be taxed at 25% and aluminum at 10%. The response to the move was overwhelmingly negative, both abroad and in the US. China and the EU immediately denounced the move. US auto makers and oil and gas producers also condemned the tariffs, saying they could get caught in the middle of a nasty trade war if other countries retaliate. In imposing the tariffs, Trump relied on a provision which allows such measures for national security, but clearly, US trading partners will not quietly accept these protectionist measures.