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USD/JPY Takes a Dive: Mid-Week Fed Pivot Leaves Currency Pinned at 142.00, Down 2% for the Week



  • USD/JPY is down almost 2% from Monday’s opening bids.
  • A pivot from the Fed saw the US Dollar decline sharply across the broader forex market.
  • Next week pits the BoJ’s last rate call of the year against US GDP & PCE figures.

The USD/JPY wrapped up the trading week struggling to develop momentum in either direction from the 142.00 handle after the US Dollar (USD) slumped against the Japanese Yen (JPY) following a mid-week pivot from the US Federal Reserve (Fed), with the central bank finally meeting market participants in the middle on rate cut expectations heading into 2024.

The Fed’s dot plot of policymakers’ cumulative interest rate expectations next year sees the Fed expecting a median of three rate cuts for a total of 75 basis points in rate cuts from the Fed’s current reference rate of 5.5%. While the Fed has moved closer to market expectations, money markets have run well ahead of the Fed’s policy stance, with swaps markets pricing in an eye-watering six rate cuts in 2024, for a combined cut forecast over 150 basis points.

Forex Today: Dollar tumbles on Fed’s pivot despite US economy still outperforming

The Fed’s pivot on rate policy sparked a risk rally that pushed the USD into the floorboards to end the week as the single-worst performing currency of the fx majors bloc, shedding weight across the board and finishing the week nearly two percent off of Monday’s opening bids against the Japanese Yen.

Next week kicks things off for the USD/JPY with the Bank of Japan’s (BoJ) final rate call and Monetary Policy Statement for 2023. An exact start time to the elusive BoJ’s rate statement is difficult to nail down, but the Japanese central bank is broadly expected to hold its main reference rate slightly below zero, in negative territory at -0.1%.

Next week also sees a fresh reading of the US’ Gross Domestic Product (GDP) on Thursday, and investors will be keeping a close eye on next Friday’s Personal Consumption Expenditure (PCE) figures. As the Fed’s favored method of tracking consumer-facing inflation, the PCE will go a long way to markets adjusting their rate expectations heading into 2024.

US Dollar price this week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Japanese Yen.

USD   -1.22% -1.00% -1.54% -1.84% -1.92% -1.41% -1.07%
EUR 1.19%   0.21% -0.32% -0.63% -0.72% -0.19% 0.14%
GBP 1.00% -0.22%   -0.53% -0.83% -0.92% -0.40% -0.07%
CAD 1.52% 0.33% 0.52%   -0.31% -0.39% 0.13% 0.46%
AUD 1.82% 0.62% 0.83% 0.31%   -0.09% 0.44% 0.77%
JPY 1.90% 0.70% 0.84% 0.39% 0.09%   0.52% 0.85%
NZD 1.39% 0.18% 0.40% -0.13% -0.43% -0.52%   0.33%
CHF 1.06% -0.15% 0.06% -0.46% -0.75% -0.82% -0.33%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

USD/JPY Technical Outlook

The USD/JPY saw a hard rebalance on Wednesday, dragging the pair back down to the 141.00 handle before the Dollar leveled out to end the trading week just above the 142.00 price point.

The pair saw a peak-to-trough decline of 3.85% on the week, and the Dollar’s decline and minuscule rebound sees the USD/JPY trading far below the 200-hour Simple Moving Average (SMA) descending through the 145.00 major handle.

The USD/JPY’s declines have dragged the pair back into the 200-day SMA for the first time since breaking through the moving average back in May of this year, and the pair is down over seven percent from the year’s peak bids at 151.83 back in November.

Despite this, Greenback bidders will be able to walk away happy: the USD is still up nearly 8% against the JPY for 2023, having started the year near the 131.00 handle.

USD/JPY Hourly Chart

USD/JPY Daily Chart

USD/JPY Technical Levels


“The USD/JPY Takes a Dive: Mid-Week Fed Pivot Leaves Currency Pinned at 142.00, Down 2% for the Week”

In the volatile world of foreign exchange, the USD/JPY pair has been making headlines. Last week, the currency pair saw a sharp downturn, with the yen gaining strength against the US dollar. What caused this sudden dive? And what can we expect in the coming weeks?

To understand the current state of the USD/JPY pair, we need to first take a look at the Federal Reserve’s mid-week pivot. The Fed, which is the central bank of the United States, surprised the markets by cutting its economic projections for 2022 and 2023. This move indicated that the Fed may start raising interest rates sooner than expected, spooking investors and causing a shift towards safe-haven currencies like the Japanese yen.

As a result, the USD/JPY pair hit a low of 142.00, down 2% from the previous week. This move was also triggered by the strengthening yen, as Japan’s vaccination rollout gained momentum and its economy showed signs of rebounding from the pandemic. Additionally, concerns about rising inflation in the US and a potential reduction in the Fed’s bond-buying program added to the bearish sentiment towards the dollar.

With this mid-week pivot by the Fed, market participants are now shifting their focus towards the upcoming meeting of the Bank of Japan (BOJ) on Friday. The BOJ is not expected to make any changes to its monetary policy this month, as it continues to support the country’s economic recovery. However, any hints of a possible tightening of the BOJ’s accommodative policies in the future could potentially further strengthen the yen against the dollar.

The Outlook for the USD/JPY Pair

Looking ahead, the USD/JPY pair is likely to remain sensitive to the developments surrounding both the Fed and the BOJ. If the Fed continues to signal an earlier-than-expected interest rate hike, we may see further downside pressure on the pair. On the other hand, any indications from the BOJ that it will maintain its easy monetary policy for a longer period could give some relief to the battered US dollar.

Furthermore, the market sentiment towards the US dollar as a whole will also play a crucial role in the USD/JPY pair’s movement. The recent surge in the US dollar index, which measures the value of the US dollar against a basket of currencies, suggests that the broader market sentiment towards the greenback is still positive. However, this could change quickly if the Fed continues to sound hawkish in its future policies.

In terms of technical analysis, the USD/JPY pair has already broken through critical support levels, making it vulnerable to further downside pressure. It is currently trading below its 200-day moving average, while its 50-day moving average is also on the verge of crossing below the 200-day moving average, forming a bearish signal known as the “death cross.” This adds to the bearish outlook for the pair in the short term.

What Does This All Mean for Traders?

For traders, the current state of the USD/JPY pair presents both opportunities and challenges. On one hand, the downtrend in the pair may provide opportunities to take short positions and benefit from a potential further decline in the USD/JPY. However, with the BOJ’s policy meeting on the horizon, any unexpected developments could cause a sudden turnaround in the yen’s strength, causing losses for traders with short positions.

Furthermore, traders should keep an eye on key economic data releases that could impact the USD/JPY pair, such as US inflation data and Japanese unemployment figures. Positive data from the US could potentially provide some support to the greenback, while upbeat data from Japan could continue to fuel the yen’s rally.

In Conclusion

The recent USD/JPY downturn has been the result of multiple factors, including the Fed’s mid-week pivot, Japan’s improving economic outlook, and concerns about the US economy’s inflationary pressures. As traders navigate through this market turmoil, it is crucial to closely monitor developments from both the Fed and the BOJ and keep an eye on key economic data releases that could impact the pair’s movement. With proper risk management and a careful assessment of market conditions, traders can navigate through these uncertain times and potentially benefit from the USD/JPY’s volatility.

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