USD/JPY reached its yearly high, but fell back after confirmation of a possible pause in the Fed Minutes

• Some Fed officials suggest the 25 basis point rate hike from the May meeting could be the last, underscoring the need for flexibility in the face of economic changes.
• Federal Reserve officials expect a mild recession later in the year, with monetary policy tightening starting to weigh on the economy and further risks to growth.
• Despite the uncertainty, most participants consider a rate cut unlikely, holding out the possibility of further hikes if necessary.

He USD/JPY extended its gains of more than 0.39% as the latest minutes from the Federal Reserve’s May meeting showed that a scenario of more rate hikes was “less certain.” As of this writing, USD/JPY is trading at 139.05, marking a new year-to-date high of 139.38.

Minutes reveal division among policy makers and stress importance of flexibility in upcoming meetings

The minutes of the Fed’s May meeting showed uncertainty among policymakers, with some approving the 25 basis point rate hike, stressing that it could be the last, while others warned that some flexibility is needed in upcoming meetings. . The officials stated that if the economy evolves “in line with its current outlook, then further policy adjustment may not be necessary after this meeting.”

Federal Reserve staff expect a mild recession later in the year, and officials “see signs” that cumulative tightening has begun to weigh on the economy, as “almost all players” see risks to growth as Bank credit hardens.

Most participants commented that rate cuts are not likely, although the possibility of raising them if necessary is on the table. “Participants stressed the importance of communicating the data-driven approach to the public.” Therefore, this confirms the approach by meetings after the May meeting, and the US central bank will update its forecasts after the June 13-14 meeting,

USD/JPY Reaction to FOMC Minutes

USD/JPY reacted higher and hit a new all-time high, above the R2 daily pivot, before paring some of those gains, with USD/JPY waiting to test the 139.00 figure. The Relative Strength Index (RSI) has made a U-turn around the overbought zone and is heading lower, while the 3-period Rate of Change (RoC) has fallen below the neutral zone, which suggests that sellers could be gaining strength.

Upside risks lie at 139.38 which, once broken, could pave the way towards 140.00. A bearish continuation is possible if USD/JPY falls below 139.00, exposing the R1 pivot at 138.91, followed by the central daily pivot point at 138.57, ahead of the 100 EMA at 138.25.