Japanese Yen Rate Talking Points
USD/JPY attempts the retrace the sharp decline following the Federal Reserve meeting[1], with the pickup in volatility spurring a more material shift in FX sentiment, but recent price action raises the risk for a further decline in the dollar-yen[2] exchange rate as it extends the series of lower highs & lows from the previous week.
USDJPY Forecast: Sentiment Mimics Conditions Prior to 2019 Flash-Crash
USD/JPY bounces back from a fresh monthly-low (109.71) as Chicago Fed President Charles Evans, a 2019-voting member on the Federal Open Market Committee (FOMC), talks down the risk for a recession and argues that the U.S. economy is merely ‘decelerating from stronger growth’ in 2018.
Like most of his colleagues, Mr. Evans largely endorsed a wait-and-see approach for monetary policy as ‘the risks from the downside scenarios loom larger than those from the upside ones,’ but went onto say that monetary policy could ‘perhaps even loosened -- to provide the appropriate accommodation to obtain our objectives.’ Nevertheless, the 2019-FOMC voting member still anticipates ‘for almost 2 percent growth this year,’ and it remains to be seen if the FOMC[3] will continue to change its tune over the coming months as the central bank prepares to wind down the $50B/month in quantitative tightening (QT) starting in May.
The comments could also infer that the FOMC has yet to abandon the hiking-cycle as Fed officials pledge to be ‘data dependent’ and forecast a longer-run interest rate of 2.50% to 2.75%, but market participants appear to be looking for a change in regime as Fed Fund Futures now reflect a greater than 60% probability for a rate-cut
