USD/JPY Rises as US Consumer Confidence Hits Second-Highest Level Since 2000

July 25, 2017 - Written by Toni Johnson

STORY LINK USD/JPY Rises as US Consumer Confidence Hits Second-Highest Level Since 2000

A combination of strong US data and caution from the Bank of Japan (BOJ) has allowed the US Dollar to Japanese Yen exchange rate to climb 0.3%.

USD/JPY is now trending around 111.5300.

US Dollar Rises as US Consumer Confidence Shows Strong Rise

After weakening throughout the morning, the US Dollar has quickly recovered losses after the latest consumer confidence data significantly bettered forecasts.

The measure of household sentiment was expected to decline from 118.9 to 116.5, but instead shot up to 121.1 - the second highest level since 2000.

Clearly the political turmoil that is weighing on the markets - both the Russia investigations and President Trump’s difficulty progressing his healthcare bill - has not had the same effect on the consumer.

The sub-indices governing attitude towards current conditions and expectations for the future both rose, while the view of consumers on the labour market was ‘favourable’, according to the report.

This has helped push up the odds of another interest rate hike towards the end of the year, with markets now putting odds of almost 53% on at least one further round of monetary tightening before 2018.

The data has been released too close to tomorrow’s policy meeting to be taken into account by the Federal Open Market Committee (FOMC) this time round, but it nonetheless helps improve the monetary policy outlook.

JPY Weakens as BOJ Meeting Minutes Show Policymakers Split over Forward Guidance

A split between Bank of Japan (BOJ) policymakers during the June policy meeting has undermined demand for the Japanese Yen today.

The minutes of the meeting, released this morning, have revealed a debate between policymakers regarding how much forward guidance the markets are provided with.

Some members of the BOJ should give clear guidance on the bank’s plans in order to prepare the market for any changes in policy.

The minutes duly noted;

‘Some members said it was important to thoroughly explain the BOJ's thinking on how it will manage policy and the impact on the central bank's finances to gain understanding.’

The BOJ is inching towards an exit from its enormous quantitative easing programme, but some policymakers are worried that giving too much information regarding such a manoeuvre could cause turbulence on the markets.

In part, policymakers were concerned that, without further analysis into the effects of QE, it would be unwise to provide markets with information which might then turn out to be inaccurate, causing unnecessary volatility.

The minutes said;

‘Several members said providing uncertain information before meeting the inflation target could cause market confusion, so it is important to continue internal analysis on this subject.’

The doves also argued that consumer price growth was still well below the target inflation rate of 2%, suggesting that, even though the latest meeting saw the board upgrade consumption expectations for the first time in half a year, an exit from quantitative easing may still be far away in the eyes of some policymakers.

Will FOMC Boost USD With Talk of Rate Hike or QE Wind Down Details?

Tomorrow’s MBA mortgage applications figures and new home sales data will be largely ignored in anticipation of the evening’s Federal Open Market Committee (FOMC) monetary policy meeting.

Policymakers are still split on the issue of delivering a third rate hike this year and the markets are currently unsure whether or not to price in another bout of monetary tightening.

Odds of a hike have fluctuated around the 50% mark for a couple of weeks now and the commentary from the FOMC meeting tomorrow could see those swing sharply up or down, depending upon the tone.

Also impacting upon the monetary policy outlook will be any news regarding the trimming of the balance sheet; the Federal Reserve is soon to start shrinking its $4.5 trillion pile of government bonds amassed through quantitative easing.

Tomorrow’s Japanese data calendar holds low and medium impact domestic data.

The docket opens just after midnight with the corporate service price figures, followed by a speech from the Bank of Japan’s Deputy Governor Hiroshi Nakaso.

Rounding off the day’s Japanese data will be the small business confidence index for July, which is expected to inch higher from 49.2 to 49.5.

With such a big event on the US data calendar, Japanese ecostats are unlikely to have much of an impact upon the US Dollar to Japanese Yen exchange rate.

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