Japanese yen steady after sharp gains

The Japanese yen has edged lower on Wednesday, after gaining over 1% a day earlier. USD/JPY is trading at 131.25 in the North American session, up 0.15%.

Williams delivers Fed pushback

The equity markets were bracing for a strong pushback from Jerome Powell, as they have consistently underestimated the Fed’s hawkish message. The red-hot employment report on Friday was the perfect opportunity for Powell to chastise the markets, but the Fed Chair was less aggressive than feared and essentially reiterated his remarks at last week’s rate meeting. The sigh of relief from investors proved to be premature, as Fed member Williams delivered that pushback on Wednesday. Williams warned that if financial conditions loosened, the Fed could respond with higher rates. He noted that the battle with inflation would be a long one, saying restrictive policy might be needed for several years to tame inflation.

What can we expect from the Fed? The markets have revised upwards their forecast for the terminal rate to 5.1%, up from below 5% before the NFP report. Fed Bank of Minneapolis President Neel Kashkari said on Tuesday that he expects rates to peak at 5.4%, and a Citigroup note warned that rates could go as high as 6%. The markets are still expecting a rate cut late in the year, despite Powell stating at the FOMC meeting that there were no plans to lower rates.

There was a report earlier in the week that the Japanese government has approached Bank of Japan deputy governor Masayoshi Amamiya to succeed Haruhiko Kuroda. Amamiya is considered a dove and can be expected to continue Kuroda’s ultra-loose policy. The report sent the yen lower for a short time and the decision of who will take over as BoJ Governor is likely to result in further volatility for the currency.

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USD/JPY Technical

• USD/JPY tested resistance at 131.42 earlier. The next resistance line is 132.23
• There is support at 130.71 and 130.16

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