USD/JPY Fundamental Daily Forecast – Weak after Fed Pushes Potential Tapering Decision into Late September

The Dollar/Yen is trading lower on Thursday after the Federal Reserve failed to strike the hawkish cord that the markets had expected in its monetary policy statement released on Wednesday and Fed Chair Jerome Powell reiterated the Fed was not ready to think about raising interest rates.

At 07:32 GMT, the USD/JPY is trading 109.813, down 0.097 or -0.09%.

The USD/JPY started to weaken on Wednesday after the Federal Reserve gave no clue about when it might start reducing its purchases of government bonds, even as it said the economic recovery is on track.

Even though investors didn’t think the Fed would make any major announcements at this meeting, I don’t think they expected policymakers to be this quiet about their tapering plans. This now leaves investors with essentially little guidance from the Fed until its next policy meeting on September 21-22.

The Fed said after its latest policy meeting ended on Wednesday that the economy has been strengthening despite a rise in coronavirus infections, and that accelerating inflation remained the result of “transitory factors.” The Fed remained upbeat and flagged ongoing talks around the eventual withdrawal of monetary policy support.

In a news conference following the release of the statement, Fed Chair Jerome Powell said the U.S. job market still had “some ground to cover” before it would be time to pull back from the economic support the U.S. central bank put in place in the spring of 2020 to battle the coronavirus pandemic’s economic shocks.

The Fed’s policy statement, issued after the end of a two-day policy meeting, reflected that confidence as the central bank continues debating how to wind down its bond purchases.

There appeared to be progress in that discussion, though no clear timetable for reducing the bond purchases. Powell said there was “very little support” for cutting the $40 billion in monthly purchases of mortgage-backed securities “earlier” than the $80 billion in Treasuries, and that once the progress begins “we will taper them at the same time.”

Daily Forecast

Although it is not being reflected in today’s price action, the upbeat tone of the Fed’s policy statement could mean the Fed will announce the start of tapering at its September 21-22 meeting.

Since the labor market seems to be a major concern, the Fed will have two monthly Non-Farm Payrolls reports under their belt at that time. Furthermore, it will also have two monthly consumer inflation reports. So there will be plenty of data available to make the call on tapering.

If there is an early decision, it could be made at the Jackson Hole Central Bankers’ Symposium August 26-28.

For a look at all of today’s economic events, check out our economic calendar.

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.