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Yen Remains Broadly On Defensive, Even As USD/JPY Drops Post-Fed

JPY

USD/JPY took a nosedive in response to comments from Fed Chair Powell during his post-FOMC press conference. The rate climbed in the lead-up to the announcement from U.S. policymakers but the prospect of slowed rate increases further down the line wounded the greenback.

  • After the FOMC signed off on an expected 75bp rate rise, Powell noted that the decision-making process will turn more data-dependent, with policy adjusted on a meeting-by-meeting basis. He also said that tightening will eventually need to slow, even as the Fed remains committed to taming runaway inflation.
  • U.S./Japan 10-Year yield gap narrowed a tad Wednesday, despite a rebound as the dust settled after Powell's comments. The spread has shrank by ~20% since the market tested the BoJ's resolve in enforcing its cap on yields in mid-June.
  • Despite the eventual downswing in USD/JPY, the yen was the second-worst G10 performer Wednesday, owing to the improvement in broader risk backdrop. Equity benchmarks in Europe & the U.S. advanced across the board, while the VIX index plumbed a new weekly low.
  • The yen has extended gains this morning, with USD/JPY last -38 pips at Y136.19. Further weakness past Y135.57 (Jul 22 low) would open up key support from Y134.27, the low print of Jun 23. Conversely, bulls look for a rally towards Jul 14 cycle high/psychological figure of Y139.39/140.00.
  • An expert panel advising the Japanese gov't on COVID-19 matters will recommend reviewing the classification of the disease as a top-level epidemiological threat, the Nikkei reported.
  • The domestic economic docket is virtually empty today, with a wealth of data & the summary of opinions from the BoJ's most recent policy review coming up Friday.
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USD/JPY took a nosedive in response to comments from Fed Chair Powell during his post-FOMC press conference. The rate climbed in the lead-up to the announcement from U.S. policymakers but the prospect of slowed rate increases further down the line wounded the greenback.

  • After the FOMC signed off on an expected 75bp rate rise, Powell noted that the decision-making process will turn more data-dependent, with policy adjusted on a meeting-by-meeting basis. He also said that tightening will eventually need to slow, even as the Fed remains committed to taming runaway inflation.
  • U.S./Japan 10-Year yield gap narrowed a tad Wednesday, despite a rebound as the dust settled after Powell's comments. The spread has shrank by ~20% since the market tested the BoJ's resolve in enforcing its cap on yields in mid-June.
  • Despite the eventual downswing in USD/JPY, the yen was the second-worst G10 performer Wednesday, owing to the improvement in broader risk backdrop. Equity benchmarks in Europe & the U.S. advanced across the board, while the VIX index plumbed a new weekly low.
  • The yen has extended gains this morning, with USD/JPY last -38 pips at Y136.19. Further weakness past Y135.57 (Jul 22 low) would open up key support from Y134.27, the low print of Jun 23. Conversely, bulls look for a rally towards Jul 14 cycle high/psychological figure of Y139.39/140.00.
  • An expert panel advising the Japanese gov't on COVID-19 matters will recommend reviewing the classification of the disease as a top-level epidemiological threat, the Nikkei reported.
  • The domestic economic docket is virtually empty today, with a wealth of data & the summary of opinions from the BoJ's most recent policy review coming up Friday.