USD/JPY Steady After the Post-Fed 6 Year High

  • USDJPY
    (${instrument.percentChange}%)

Fed Policy Decision

The US central bank increased interest rates by 25 basis points (to 0.25%-0.5%) on Wednesday, noting that more hikes will be "appropriate" [1]. Mr Bullard was the lone dissenter, voting for a larger 50 basis points hike.

The dot-plot showed that officials see roughly six more increases this year, from three in their December projections, with the median projection now standing at 1.9% [2]. This would amount to quarter-point hikes in every meeting of 2022.

The reduction of the balance is expected to begin "at a coming meeting", with Mr Powell adding that this could come "as soon as our next meeting in May", during his press conference [3].

USD/JPY Reaction

Overall, the Federal Reserve did not offer any surprises, since the move had been well telegraphed and the US Dollar dropped yesterday against some of its major counterparts, following the kneejerk reaction higher.

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The USD/JPY however extended its recent rally to the highest level since February 2016 (at 119.13), as the Bank of Japan is being left further behind its US peer, in the monetary policy normalization path. The central bank of Japan is still on the far dovish side of the spectrum, with rates at -0.1% and ongoing asset purchases.

The pair is running an impressive month with gains in excess of 3% at the time of writing, which has brought 120.00 in the spotlight, but we are not sure if the bulls are ready to conquer it.

Today they show some exhaustion and the eight-day rally pauses, while the move is overextended. This creates risk for a pullback towards 117.69, but a strong catalyst would be needed for a deeper correction towards and below 117.00.

From the economic calendar, markets now await Jobless Claims (12:30 GMT) and Industrial Production (13:15 GMT) from the US, while the Bank of Japan hands down its monetary policy decision at 03:00 GMT.

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 17 Mar 2022 https://www.federalreserve.gov/monetarypolicy/files/monetary20220316a1.pdf

2

Retrieved 17 Mar 2022 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf

3

Retrieved 16 May 2022 https://www.youtube.com/watch

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