Dollar/yen emerged from the lows mostly thanks to optimism about peace in the Korean peninsula and also as the US Dollar retreated against many currencies. The US inflation report is the main event in a relatively light week on the calendar, but geopolitics could continue to play a role.
USD/JPY fundamental movers
It was certainly a busy week. The main driver of the pair to higher ground was the news that North Korea would be willing to forgo its nuclear weapons if it gets guarantees for its regime. When Donald Trump accepted the invitation to meet North Korea’s Kim Jong-un, the pair already soared. Demand for safe-haven assets dropped.
The tariffs that Trump imposed on steel and aluminum were slightly watered down, also removing some of the fear, but this story will likely go on and on.
The Bank of Japan left its policy unchanged and it seems quite unlikely that they will remove any stimulus in the fiscal year 2019. The previous comments were backtracked and the impact diminished.
In the US, the Non-Farm Payrolls showed a huge gain of 313K positions in February + 54K in upwards revisions. However, wages rose only 0.1% m/m and decelerated to 2.6% y/y.
Inflation, retail sales, and further geopolitics
The calendar is relatively light, but Tuesday’s inflation report will be watched very closely. Core CPI is still at 1.8% and no change is expected. Any deviation from that number may change expectations for the number of hikes the Fed will imply in its dot-plot. A rate hike in March is all but certain.
The retail sales report on Wednesday gets its time in the limelight, without any other figures in the way. Later on, housing data and consumer sentiment will end the week.
Watch out for any geopolitical news: a Kim-Trump summit has not been finalized, nor has an inter-Korean meeting. In addition, the trade battles may escalate to full-blown trade wars.
In Japan, the main event is the release of the BOJ Meeting Minutes, but this will unlikely be a market mover.