Japanese yen steady, FOMC looms

The Japanese yen has posted slight gains on Wednesday. In North American trade, USD/JPY is trading at 108.75, down 0.13%.

Slowly but surely, the yen is making up ground against the dollar. After sliding 1.0% last Wednesday, the yen has put together five winning sessions and recovered these losses.

Japan’s economy continues to struggle with the Covid pandemic. The vaccine rollout has been sluggish and Covid infection rates remain high. The extended health restrictions have put a chill on consumer spending, as the restaurant sector has been hampered by limited hours. In the fourth quarter, GDP contracted by 1.3%, a sharper decline than the consensus of -1.1%. Another decline in GDP would technically mean that the economy is in recession.

One bright spot in the economy has been the manufacturing sector, which is showing growth as the global economy slowly finds its footing. On Wednesday, Industrial Production for March rebounded with a gain of 1.7%, up from -1.3% beforehand. Manufacturing PMI has been in growth territory for three successive months, and the forecast for May stands at 53.0, above the 50-level which separates contraction from expansion.

Will FOMC minutes shake up the dollar?

After the jump in the US April inflation last week, investors are concerned that higher, sustainable inflation could be here to stay, despite the Federal drumming out the message that higher inflation is temporary. The FOMC minutes of the April policy meeting will be released later today (18:00 GMT).

There is some apprehension in the market ahead of the release, which means that we could see some movement from the US dollar later in the North American session. Fed policymakers are expected to repeat that it is still too early to discuss easing the massive 120 billion dollar asset-purchase program (QE). It remains to be seen if investors accept the Fed line that higher inflation is transitory and the economy still requires present levels of QE, or will the Fed find itself out of sync with the market’s view of the health of the economy.

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USD/JPY Technical

• USD/JPY is facing resistance at 109.99. Above, there is resistance at 110.61
• The pair is putting strong pressure on 108.55. Below, there is support at 107.73

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