USD/JPY plunges below 129.00 after Fed decision and Powell press conference

• USD/JPY was rejected at the 20-day EMA and plunged as the Federal Reserve raised rates by 25 basis points.
• Federal Reserve officials stated that further increases in 25 basis point increments would be appropriate.
• Powell’s disinflationary comments sent US Treasury yields falling and sent the US dollar tumbling.

USD/JPY is plunging sharply after the US Federal Reserve decided to slow the pace of rate hikes and hike rates by 0.25% at its first policy meeting of 2023. Therefore, the yield The 10-year US Treasury price plunges more than ten basis points towards 3.40% as the market responds to the Fed’s decision and Powell’s speech. As of this writing, the USD/JPY pair is trading on volatility around 128.50-129.20.

Some statements by the Chairman of the Federal Reserve, Jerome Powell

As of this writing, US Federal Reserve Chairman Jerome Powell’s press conference continues and the dollar continues to weaken overall.

In his press conference, Powell said it would be premature to declare victory over inflation, saying the job is not fully done. He acknowledged that “it is good that disinflation so far has not come at the expense of the labor market.”

Powell added that the Federal Open Market Committee (FOMC) has not decided on a terminal rate, and if the data becomes weaker, then the central bank would become dependent on the data. He added that the Fed has no desire to over-tighten, but if they do, they have the tools to work on it.

When asked about the discussions at the meeting, Powell said they were talking about a couple more rate hikes to come up with an “appropriately tight stance.”

Summary of the Fed’s monetary policy statement

On Wednesday, Fed policymakers unanimously decided to raise rates by 0.25%, putting the Fed Funds Rate (FFR) at around 4-50% – 4.75%. In addition, they bucked market expectations of a Fed turnaround, saying further rate hikes would be appropriate. Policymakers guided the market, adding that future rate hikes would come in 25 basis point increments, dropping the reference to the “pace” of additional rate hikes.

Fed officials acknowledged that inflation “has softened a bit, but it’s still high.” Participants added that indicators point to modest growth in spending and output and commented that the labor market remains strong. Fed members stated that “in determining the scope of future rate hikes, it will take into account accumulated tightening, policy lags, and economic and financial developments.”

USD/JPY Reaction to Headlines

The USD/JPY 15-minute chart shows that the pair fell below 129.50 and broke support levels, such as the daily pivot points S2 and S3, each at 129.32 and 128.90. It then continued towards the daily low at 128.54, reversing course and recapturing the S3 pivot point. Next, USD/JPY tested the 20 EMA at 129.21 before resuming its downtrend. USD/JPY, the first support level, would be the S3 pivot at 128.90, followed by the daily low at 128.54, and then the S4 daily pivot at 128.48.