USD/JPY Mixed as Mr Powell Stresses the Fed’s Resolve to Fight Inflation

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Mr Powell Comments

A week after Headline Consumer Price Index (CPI) had eased to 8.3% year-over-year in April (from 8.5% prior), Fed Chair Powell stressed the central bank's resolve to fight inflation, speaking on the Wall Street Journal Future of Everything Festival on Tuesday. [1]

He said that officials need to see "clear and convincing evidence inflation pressures are abating and inflation is coming down" and if they don't, then they will to consider "moving more aggressively".

He added that, if this involves going beyond "broadly understood levels of neutral", officials "won't hesitate at all to do that". In regards to the effect of the aggressive tightening on the Labor market, he noted that it would still be "quite strong" if unemployment were to "move up a few ticks".

Japan GDP Contraction

The Summary of Opinions from the last policy meeting of the Bank of Japan in late April, which were published last week, had shown that bank officials believe that it is "necessary" to continue the current "powerful monetary easing". [2]

Looks like the economy does need support indeed, since today's data showed a contraction in the first quarter. Preliminary Q1 GDP came in at -0.2% quarter-over-quarter, from +0.9% prior (revised from +1.1), while annualized GDP shrank 1%, from 1.8% prior (revised from +4.6%).

USD/JPY Analysis

The pair had extended its rally to fresh twenty-year highs early last week, which ended up being a losing one, the first since early-March. This came in a backdrop of inflation moderation in the US and somewhat conservative rhetoric from the Fed, which allowed the Japanese Yen to attract some risk-aversion flows.

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Bulls managed to stay above key 23.6% Fibonacci form this year's lows to the highs and the EMA200 (127.40-12), but the pair's underwhelming performance continues, keeping it vulnerable to this area. A successful break below them could accelerate a decline towards the 38.2% level (124.51), but a catalyst likely be required for that.

The greenback however remains in control and yesterday's commentary by Mr Powell seemed to reassert the Fed's hawkishness and resolve to bring inflation down. Bulls have not lost sight of the 131.35 high and the ability to set new one, but may need fresh impetus, while 133.89 seems distant for now.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 18 May 2022 https://www.youtube.com/watch

2

Retrieved 07 Dec 2022 https://www.boj.or.jp/en/mopo/mpmsche_minu/opinion_2022/opi220428.pdf

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