USD/JPY sinks 20 pips on the Fed
- Fed left the benchmark interest rate unchanged within the target range of 0% - 0.25% as widely expected.
- USD/JPY struggles with gravity following a dovish FOMC statement.
- Markets, however, are seeing a light at the end of the tunnel.
With both the USD and US stocks moving lower, USD/JPY has shed a handful of pips from within today's range of 106.89 and 106.35. USD/JPY is currently losing 0.26% at the time of writing following the Federal Reserve interest rate decision and statement.
In am unanimous vote on Wednesday, the Federal Open Market Committee (FOMC) announced that the Fed left the benchmark interest rate unchanged within the target range of 0% - 0.25% as widely expected.
A vastly different statement from last time around states that rates will stay at the bottom until the economy on track and how the FOMC is committed to using its full range of tools to support the economy:
Key notes from the statement
Rates unchanged in a range of 0.00%-0.25%, as expected.
- Fed funds rate 2-year projection vs 1.6% prior.
- Fed funds rate 3-year projection vs 1.9% prior.
- Fed funds rate long-term projection vs 2.50% prior.
- Says will continue to offer large-scale overnight and term repo operations
- Fed says rates to stay at lower bound until economy has weathered recent events and on track to achieve unemployment and inflation goals.
- Interest on excess reserves unchanged at 0.10%.
- Public health crisis will weigh heavily on the economy, employment and inflation in the near term.
- Will monitor incoming information for economic outlook and public health along with global developments in setting policy.
- Will continue buying Treasuries, agencies and commercial MBS in amounts needed.
- Will continue to offer large-scale repos.
- Disruptions to economic activity in US and broad have significantly affected financial conditions.
See here for the full statement
Markets now await the Fed's chairman, Jerome Powell, to host a virtual press conference at 1830 GMT.
Markets see a light at the end of the tunnel
It is worth noting that JPY net long positions edged up slightly last week but remain off their recent highs, as noted by analysts at Rabobank who argue that JPY is likely to remain well supported on safe-haven flows. "The better tone in stock markets," however, "and criticism about the government’s approach to the crisis has subdued the JPY," the analysts add.
With nations around the world, and including some US states, seeking to get their economies back on track by easing social distancing measures and businesses opening again, markets se a light at the end of teh tunnle. This in turn is supporting a risk-on tone in finccial markets, potentially a spanner in the works for the yen. More over, Japan was late to join the lockdown with its delayed national state of emergency as cases of COVID-19 spiked which, as the analysts at Rabobank note, could continue to weigh on the Japnese yen.
USD/JPY levels