- USD/JPY is almost flat after the Fed’s 50bp rate hike, the first in 20 years.
- Quantitative adjustment (QT) will start on June 1.
- In the headline, USD/JPY fluctuated around the range of 129.70-130.37.
The USD/JPY remains stable as the US Federal Reserve decided to raise rates by 50 bps while announcing its $8.9 trillion balance sheet reduction. At the time of writing, USD/JPY is trading around 129.40 as traders listen to Fed Chairman Jerome Powell’s press conference.
FOMC Monetary Policy Statement Summary
The US central bank stated that “inflation is expected to return to its 2% target and the labor market is expected to remain strong with appropriate tightening of monetary policy”. However, the FOMC stated that the high prices reflect imbalances in supply and demand related to the Covid-19 pandemic. The Fed reiterated that it would remain “attentive to inflation risks.”
The committee acknowledged the negative print on first-quarter GDP, saying “household spending and business fixed investment remained strong.”
Regarding geopolitics, in particular the war between Ukraine and Russia, the US central bank stated that “the implications for the US economy are highly uncertain, but in the short term it is likely that The invasion and related events create additional upward pressure on inflation and weigh on economic activity.” In addition, they added that the war is “causing tremendous human and economic hardship.”
Regarding the balance sheet reduction, the Fed said it would start on June 1. The central bank will initially cap US Treasury bonds at $30 billion per month. As for agency debt and mortgage-backed securities (MBS), the Fed will cut it by $17.5 billion per month. In both cases, the cap will be lifted after three months, as the US Treasury bond drawdown will reach $60bn, while the MBS cap will rise to $30bn.
USD/JPY Headline Reaction
USD/JPY initially reacted lower as the decision was seen as a “buy the rumour, sell the fact” event and printed a daily low around 129.73. However, once market participants digested the Fed’s monetary policy statement, USD/JPY jumped to daily highs above 130.30 to settle around current levels, as Fed Chairman Jerome Powell , went up to the podium.
Technical levels
Source: Fx Street
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