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Our target of 100.00 on the pair has been activated, with USD/JPY falling to a low 99.42.
The FOMC minutes caused some confusion, but ultimately didn’t really change the overall feeling that September is the markets’ base-case for a tapering exercise to begin. It seems that a few members still want to see more evidence of a projected acceleration in the economy before cutting the pace of bond purchases, while others wanted to see more jobs gains. It’s important to remember that these minutes pre-date the recent strong payrolls report, so clearly that would have pleased the Fed’s hawks.
The real action however occurred during Ben Bernanke’s speech after the close of the US equity market. Clearly his narrative was dovish, with the fixed income market closing shorts and piling into long US treasury positions, and the ten-year dropping six basis points and falling to 2.62% (from 2.68%).
This saw the USD sold across the board, with USD/JPY at the centre of the move. Clearly the Fed Chairman pushed back on the recent moves in the bond market and we feel the comment that there will not be an automatic increase in interest rates when US jobless rate hits 6.5% is key. It seems the Fed is saying that while it has threshold target for changes in the Fed funds rate, it can still keep rates low if it feels the economy is still suspect.
Overall we don’t think these comments signal a change in policy from the recent FOMC meeting, but they clearly reinforce the view that it is a long way away from normalising policy.
Having taken profits on the trade, we will look for fresh opportunities.