The yen posted strong gains in the aftermath of the Federal Reserve decision on Wednesday, but has retracted in the Thursday session. Currently, USD/JPY is trading at 100.70. Japanese markets are closed for a holiday, so there are no Japanese events until Friday. In the US, today’s highlights are unemployment claims and existing house sales.
Wednesday was a double matinée, with both the Bank of Japan and the Federal Reserve setting interest rates and releasing rate statements. The markets were geared for volatility from the yen, and the currency didn’t disappoint, as USD/JPY jumped immediately after the BoJ announcement, only to reverse directions and fall sharply. At the end of the Wednesday session, the pair was down 120 points. USD/JPY has stabilized on Thursday, trading close to the 101 level.
The BoJ refrained from making any dramatic moves but did make some minor changes to monetary policy. There was some surprise that the BoJ held rates at -0.10%, as the markets had predicted a cut to -0.20%. The BoJ held monetary base at JPY 80 billion/year, but said it would abandon its monetary base target until inflation reached the 2% target. The bank appears intent on putting greater emphasis on combating deflation, which remains a serious danger to the struggling economy. The BoJ will adopt a “yield curve control” under which it will buy long-term government bonds to keep 10-year bond yields at current levels around 0%. The bank also awarded itself an excellent report card. Its “comprehensive assessment” indicated that the bank’s policy moves had largely been successful, although it acknowledged the side effects of low yields and negative interest rates. After the BoJ announcement, Japanese Prime Minister Shinzo Abe said that the government and the central bank would “work as one in close coordination to accelerate Abenomics”.
As widely expected, the Federal Reserve maintained the benchmark interest rate at 0.25%, where it has been pegged since last December. In a highly unusual step, however, three of the ten FOMC members dissented with the decision. Esther George, Loretta Mester and Eric Rosengren voted against holding rates steady, preferring to raise rates immediately by a quarter-percentage point. This was the first time since December 2014 that three FOMC voting members have dissented with the Fed rate decision. This significant dissent underscores that Janet Yellen has been unable to “rally the troops” behind her leadership, with one economist calling the Fed decision “one of the most decisive FOMC meetings in recent memory”.
The Fed statement noted strong growth in employment and consumer spending, but added that business fixed investment remains weak. The Fed’s “dot plot” indicated that policymakers expect a quarter-rate hike before the end of the year. The Fed’s current stance is being called a “hawkish hold” as the Fed has put the markets on notice that a December rate hike is likely. Using typically bland language, the Fed stated that “the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” Reading between the lines, the Fed is looking for stronger inflation numbers, and upcoming inflation indicators (as well as consumer spending and employment) will have a significant impact on the odds of a December rate hike. The Fed sounded dovish about future rate moves, scaling back projections for 2017 from three rate moves to just two hikes.
Thursday (September 22)
- 8:30 US Unemployment Claims. Estimate 261K
- 9:00 US HPI. Estimate 0.3%
- 10:00 US Existing Home Sales. Estimate 5.45M
- 10:00 US CB Leading Index. Estimate 0.0%
- 10:30 US Natural Gas Storage. Estimate 59B
*All release times are EDT
*Key events are in bold
USD/JPY for Thursday, September 22, 2016
USD/JPY September 22 at 6:55 EDT
Open: 100.39 High: 100.87 Low: 100.09 Close: 101.74
- USD/JPY showed limited movement in the Asian session. The pair has posted gains in the European trade
- 101.20 is providing support
- 102.36 is an immediate resistance line
- Current range: 101.20 to 102.36
Further levels in both directions:
- Below: 101.20, 100.55, 99.71 and 98.95
- Above: 102.36 and 103.73 and 104.88
OANDA’s Open Positions Ratio
USD/JPY ratio is showing slight gains towards long positions on Thursday. Currently, long positions have a substantial majority (72%), indicative of trader bias towards USD/JPY continuing to move higher.