Japanese Yen Talking Points
USD/JPY is back under pressure as Fed officials scale back their hawkish tone ahead of the December meeting, and recent price action raises the risk for a larger pullback as the exchange rate extends the series of lower highs & lows from earlier this week.
USD/JPY Extends Bearish Series Following Less-Hawkish Fed Rhetoric
The rebound from October-low (111.38) continues to unravel as Federal Reserve Vice-Chairman Richard Clarida tames bets for an extended hiking-cycle, with the policymaker favoring the benchmark interest rate ‘being at neutral’ amid the uncertainty surrounding the world economy.
At the same time, Dallas Fed President Robert Kaplan infers that the Federal Open Market Committee (FOMC)[1] has ‘a little bit of latitude to be patient and gradual’ as he sees a limited threat for above-target inflation, and it seems as though Chairman Jerome Powell & Co. are on a preset course to take the benchmark interest rate to the longer-run forecast of 2.75% to 3.00% as the central bank fulfills its dual mandate for full-employment and price stability.
The comments suggest the FOMC[2] will ultimately conclude its hiking-cycle in 2019 as ‘profit growth and estimates of profit growth are slowing,’ and USD/JPY may continue to consolidate ahead of the Group of 20 (G20) Summit on tap for later this month as China and the U.S. struggle to reach an agreement. However, the ongoing shift in trade policy[3] may require the Fed to temporarily implement above-neutral interest rates as higher tariffs fuel input prices, and a growing number of central bank officials may see a risk of extending the hiking-cycle as inflation holds above the 2% target.
