The market has turned its attention to the FOMC report which details the committee’s outlook on the nation’s monetary policy. The report was released early this morning (due to the time difference). As a result, the USD/JPY initially increased by 0.30% but lost momentum after 70 minutes and has since corrected to 50% of the original price movement.
During this morning’s report, the committee indicated that members are prepared to move ahead with multiple 50 basis point interest rate hikes in order to lower demand and inflation. In addition, the Federal Open Market Committee advised that it may be necessary for monetary policy to move past “neutral” and into “restrictive” territory. This is likely to strongly affect not only the US Dollar but also the stock market.
The “Minutes” indicate that members are hopeful they can bring inflation under control and closer to the Fed’s original inflation target, but also concerned about financial stability risks. Experts claim that rate hikes are likely to take place in the summer months, but are uncertain regarding potential hikes towards the end of the year.
In Japan’s monthly economic report released yesterday, the country's government advised that the economy is showing signs of recovery. However, the risk of recession has intensified, as a result of Japan’s neighbor, China, maintaining its strict lockdown measures. Even though the Japanese Yen has improved since mid-April, the currency still remains relatively weak.
The estimate of import volumes was also reduced due to a 20% drop in the supply of goods from China. This may improve over the coming months as the Chinese economy reopens. The employment sector shows signs of growth according to economists, as unemployment fell to a two-year low of 2.6%.
Finance Minister, Mr Suzuki, confirmed that the government would take steps to reduce the negative impact of the rising cost of living and ensure that the economy continues to recover. The official was likely referring to a new additional 2.7 trillion budget to help households and small businesses deal with the difficulties associated with higher energy and food prices.
When evaluating the US Dollar index, which gives the price of the US Dollar against 6 currencies, we can see that the Dollar has indeed increased over the past two days. Though the upward movement on the index is showing signs of less volatility and momentum compared to the downward trend seen between the 13th - 24th May.
The JPY index has reached record lows this year, but has attempted to gain back some of the losses. Gains halted on 13th May when the currency saw multidirectional price movements and a symmetrical triangle pattern formed on the charts. This indicates that the market could be considered as uncertain, and hesitant to hold onto its positions.
A similar story is being told when looking directly at the USD/JPY. The asset has increased in value after the FOMC Minutes but has quickly lost momentum and we can see a slight decline towards the end of this morning’s Asian session.
Significant price movements on the USD/JPY chart can be seen mainly at 128.070 and 126.350. This is based on the latest price movement over the past week. Traders will also be influenced by today’s US GDP (Gross Domestic Product) statistics which are predicted at -1.3% and the US Unemployment Claims predicted to remain at the 217,000 mark. If the figures released strongly vary compared to the market’s predictions, it could possibly cause strong volatility.
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