Japanese Yen Talking Points
USD/JPY[1] holds a narrow range following the mixed developments surrounding the U.S. Gross Domestic Product (GDP) report, but the exchange rate stands at risk of facing range-bound conditions ahead of the Federal Open Market Committee (FOMC) meeting as it snaps the recent series of lower highs.
USD/JPY Rate Outlook Hinges on FOMC as Bearish Series Snaps
Despite the downtick in the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, the 4.1% expansion in the growth rate should keep the central bank on track to further normalize monetary policy as ‘recent data suggest that growth of household spending has picked up.’
The 4.0% rise in Personal Consumption may encourage the FOMC[2] to adopt a more hawkish tone as inflation holds around the 2% target, and the Chairman Jerome Powell & Co. may utilize the August 1 interest rate decision to prepare U.S. households and businesses for an imminent rate-hike as ‘the FOMC believes that--for now--the best way forward is to keep gradually raising the federal funds rate.’
With that said, Fed Fund Futures may continue to reflect expectations for four rate-hikes in 2018 as market participants currently price a greater than 60% probability for a move in December, and the fresh batch of Fed rhetoric may influence the near-term outlook for USD/JPY especially as the Bank of Japan (BoJ) is widely expected to stick to the Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control in August.
Keep in mind, USD/JPY remains at risk for a larger correction as both price and the Relative Strength Index (RSI) fail to preserve the upward trends from earlier this year, and recent price action warns of range-bound conditions as
