USD/JPY Within Touch of 140 Despite Global Recession Risks

Posted Thursday, May 25, 2023 by
Skerdian Meta • 2 min read

USD/JPY has been bullish since late March, as the banking crisis was put under control. Since then this pair has gained around 10 cents and moving averages have been acting as support. Recently the 20 SMA (gray) has taken over this job, which shows that the buying pressure is strong despite the global risks of a recession.

The recent upward movement in the USD/JPY currency pair was triggered by comments from Waller, who presented a scenario where the two options for the June 14 Federal Open Market Committee (FOMC) meeting are either a rate hike or setting the stage for a hike in July. However, it’s important to note that Waller’s views may not necessarily reflect the official stance of the Federal Reserve, and his remarks were heavily reliant on data, which means they are subject to change.

Currently, the trend indicates a stronger U.S. dollar against the Japanese yen, as evidenced by the USD/JPY chart breaking to new highs and confirming the breach of the March peak. The rise in yields, including a 5.3 basis points increase in the 5-year Treasury yield to 3.800%, just before an upcoming auction, has contributed to this trend.

The market is once again reassessing whether the Federal Reserve has reached its peak in interest rates and how sustainable this pause will be. This reassessment suggests that the economy is robust and resilient. However, there is a concern that the Federal Reserve might eventually tighten monetary policy too aggressively, potentially leading to a crisis similar to the banking crisis in the past.

Alternatively, the catastrophe could be self-inflicted, such as the ongoing debate regarding the debt ceiling. This unresolved issue continues to create uncertainty, which has negative implications for the market and the overall economic situation.

Comments from FED Member Waller

  • Decision to hike or not in June will depend on data
  • FED needs to maintain flexibility for June meeting
  • Prudent risk management may suggest skipping a hike in June and leaning toward July
  • Does not expect data in next couple of months to make it clear terminal interest rate has been reached
  • Says he does not support stop hikes unless there is clear evidence that inflation is moving down to 2% target
  • More loosening of ‘very tight’ labor market needs to be see to help take heat off high inflation
  • He is concerned about the lack of progress on inflation
  • Concerned inflation won’t come down much unless growth of average hourly wages nears 3%
  • April PCE and May CPI data will be critical
  • Cites falling temp-help employment as a sign of job market loosening
  • Core goods prices aren’t slowing or retreating as much as we need to get inflation down closer to our 2 percent target
  • Most recently, a rebound in the housing market is raising questions about how sustained lower rent increases will be
  • Full speech

The April PCE report is due on Friday while the May CPI report is due June 13, just one day before the FOMC decision.

The odds of a June hike were relatively stable at near 30% on these comments, which aren’t a big surprise given his hawkish leanings. The idea of skipping June and hiking in July may be one the market starts to flirt with more meaningfully. That said, the July meeting is already better than 50/50.

USD/JPY Live Chart

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