USD/JPY scales to near 134.50 on dovish BoJ minutes, spotlight shifts to US Retail Sales

The USD/JPY pair is approaching 134.50 amid the release of the dovish Bank of Japan (BoJ) minutes for the monetary policy meeting, announced last week on March 09. The last monetary policy announcement by ex-BoJ Governor Haruhiko Kuroda lacked surprises as a continuation of an ultra-dovish policy stance was highly required to keep inflation steady near desired rates.

The commentary in BoJ minutes that the central bank will continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner, indicates that the ultra-loose monetary policy would stay for a longer period.

Also, the BoJ will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds 2 percent and stays above the target in a stable manner

S&P500 futures have trimmed losses generated after a super-bullish settlement on Tuesday. Positive commentary from Federal Reserve (Fed) Governor Michelle Bowman on United States banking system has infused optimism in risk-perceived currencies. Fed policymaker cited “The US banking system has substantial liquidity and capital, and the Fed board is closely observing developments.

The US Dollar index (DXY) looks vulnerable above 103.50 as US Consumer Price Index (CPI) has softened and the Fed is likely to go light on interest rates to avoid recession in the American economy. The alpha provided on 10-year US Treasury bonds has climbed to near 3.69% despite rising odds for a 25 basis point (bps) interest rate hike by the Fed. According to the CME FedWatch tool, around 70% chances are favoring a 25 bps rate hike push to a 4.75-5% interest rate.

For further guidance, the release of the US Retail Sales and Producer Price Index (PPI) (Feb) data will be keenly watched. According to the estimates from RBC Economics “US retail sales edged 0.1% lower in February, with sales in the motor vehicle sector shrinking by 3.3% during that month.”

Apart from that, the monthly US PPI is expected to expand by 0.3%, lower than the former release of 0.7%. While the annual figure would soften to 5.4% from the prior release of 6%. A decline in the PPI figures would indicate that producers are struggling to expand the prices of goods and services at factory gates due to a decline in the overall demand. Eventually, it would trim the demand for labor and the overall inflation ahead.