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Japanese Yen Edges Lower, Markets Eye Kuroda Speech at G-20

USD/JPY has edged higher in the Tuesday session, recovering most of the losses seen on Monday. In the North American session, the pair is trading at 108.47, up 0.29% on the day. In economic news, Japanese Preliminary Machine Tool Orders posted a third successive decline, with a reading of -18.3%. Later in the day, BoJ Governor Kuroda will deliver a speech at the G-20 symposium in Tokyo, which should be treated as a market-mover. In the U.S., producer inflation declined in December, as PPI and Core PPI both missed their estimates.

The yen started the New Year with strong gains, but the rally has taken a pause, as risk apprehension has subsided. Is this the calm before the storm? China released soft data on Monday, as the world’s second largest economy continues to show signs of a slowdown. Chinese exports down 4.4 percent from a year earlier and imports plunging 7.6 percent. A decline in China could send the Japanese economy into recession, as the export and manufacturing sectors are heavily dependent on Chinese demand.

The Federal Reserve has made a U-turn on monetary policy, but by how much? There is a large discrepancy between Fed forecasts and market expectations, which could result in volatility in the currency markets, as traders try to figure out what the Fed will do in 2019. The most recent projections from individual policymakers in the Federal Open Market Committee (FOMC) stands at two rate hikes this year, but the markets are expecting the Fed to hold pat and not raise rates in 2019. Moreover, the markets have priced in a rate cut before the end of the year at 28 percent. On Monday, former Fed Chair Janet Yellen said that she expected the Fed to take a breather, saying that it’s ‘very possible’ that the Fed has made its last hike of this cycle.

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