Yen extends rally, crosses below 110

The Japanese yen is up sharply on Thursday. In the European session, USD/JPY is trading at 109.92, down 0.63% on the day. In the Asian session, the pair touched a low of 109.75, its lowest level since June 21.

FOMC minutes a non-event

The was plenty of anticipation ahead of the release of the FOMC minutes on Wednesday, with investors hoping that the minutes would provide some clues as to when the Fed might begin scaling back its bond purchases. In the end, however, the release turned out to be a sleeper, and market reaction was muted.

The minutes indicated that policymakers discussed tapering at the June policy meeting, but that there was no appetite on the part of most members to take any action. Some members called for a taper, arguing that the economic recovery was moving more quickly than expected and inflation was on the rise. Still, the dominant view was no need at this time for any shift in policy, as the economy still needed to make “substantial further progress”. There were no clues as to the timing of a taper, but one takeaway from the minutes is that there is only limited support for any reduction in QE.

Bottom line? The Fed continues to “talk about talking about tapering.”

In Japan, Prime Minister Yoshihide Suga faces an election in the autumn, and election season often means economic goodies. According to a Bloomberg report, Suga is expected to unveil a stimulus package of between 20-30 billion yen before the election, in order to shore up weak electoral support. The government has been criticized for its poor handling of the Covid pandemic, including a sluggish vaccine rollout. An increase in economic stimulus should kick-start the weak economy, which has been hampered by health restrictions to contain Covid.

USD/JPY Technical

• USD/JPY has broken below support at 110.41 and 109.80. The next support level is 109.18
•  On the upside, there is resistance at 111.65 and 112.88

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