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On May 21, market analysts stated that the minutes of the Federal Reserves April meeting revealed that as the conflict in Iran pushes up inflation, a growing number of officials raised concerns about a tightening stance. At the previous meeting in March, "some" participants indicated that the Fed had ample reason to provide balanced policy guidance, suggesting the next move could be either a rate hike or a rate cut, contrary to the prevailing view that a rate cut would eventually occur. In April, this group expanded to include "many" officials who preferred more neutral wording in the policy statement. The April minutes also noted that, overall, officials generally believed that interest rates would need to remain stagnant for longer than they had initially anticipated.On May 21, Federal Reserve officials concerns about the Iran war pushing up inflation intensified last month, with a growing number of officials saying the Fed should pave the way for a possible interest rate hike. This indicates that incoming Fed Chairman Warsh will be taking over an increasingly hawkish policy-making team. Furthermore, most policymakers at the April meeting indicated that further policy tightening might be necessary if inflation continues to remain above the 2% target. The minutes show that "in response to this possibility, many participants indicated they preferred to remove language suggesting a dovish bias in future interest rate decisions." These minutes, considered "the most divisive in generations," further reveal the shift in the two camps welcoming Warsh: a growing hawkish camp wary of inflation triggered by the Iran war and opposed to any discussion of rate cuts, and a waning dovish camp still inclined towards rate cuts. The main reason driving policymakers further towards a hawkish stance remains inflationary pressures, exacerbated by the war. The minutes show that the April meeting was the second consecutive meeting where more policymakers believed that a rate hike might be necessary if inflation continues to remain above the target.Federal Reserve meeting minutes: The economic outlook forecasts of Federal Reserve staff were slightly stronger than at the March meeting.Federal Reserve meeting minutes: Almost all participants supported keeping the target range for the federal funds rate unchanged at this meeting.Federal Reserve meeting minutes: Participants generally agreed that the Middle East conflict could have a significant impact on the balance of risks and the appropriate policy path.

USD/JPY Bulls compete for easy pickings while bears lurk nearby

Daniel Rogers

Sep 29, 2022 14:27

截屏2022-09-29 上午10.25.29.png 

 

Because US yields fell overnight in response to the Bank of England's unexpected move to purchase bonds, the USD/JPY fell to 143.90 in late New York trading. As a result, bulls gave up in the last trading days of the month, sending global bond yields lower, stock prices higher, and the US currency plunging. Following a rise from the 144.04 level, the USD/JPY is currently targeting that level again.

 

In its first daily decline since September 19th, the US dollar index (DXY) is up 0.36 percent on the day but has reversed from a 20-year high. The yield on the 10-year gilt dropped over 50 basis points to 4.00% while the yield on the 10-year treasury plummeted 21.4 basis points to 3.733% overnight after the BoE's announcements. In reaction, European stocks increased in value, pushing the S&P 500 up by 2.0%.

 

Beginning September 28th, the central bank has announced that it will initiate short-term purchases of long-term UK government bonds in an effort to restore market equilibrium. BoE said in a statement, "The purchases will be made in whatever quantity is necessary to achieve this aim." After the Old Lady got involved, the yield on the 30-year benchmark gilt dropped by more than 50 basis points, and this was despite the BoE putting most of its attention on the July 2051 bond and buying only GBP1 billion.

 

In the wake of a severe drop, the USD/JPY exchange rate could be heading for a further correction of the rapid increase from 140.35 a week ago. However, USD/JPY has upward potential so long as the policy gap between the Federal Reserve and the Bank of Japan exists.

 

"The Japanese Ministry of Finance, however, will be aware of the currency's current vulnerability and will likely aim to generate sufficient fear of further intervention to discourage speculators. On the other hand, our goal for the next three months remains USD/JPY147.00 "According to Rabobank research.


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