All trading involves risk. Losses can exceed deposits.

USD/JPY sees choppy trade ahead of FOMC minutes

USD/JPY is oscillating around the 100.00 level and seems to lack impetus to really test the 11 September high of 100.61.

All trading involves risk. Losses can exceed deposits.

Federal Reserve president Ben Bernanke spoke during US trade, but he didn’t really provide any ground-breaking information on when the Fed is likely to cut back its bond purchases. Again, the path around tapering is fully data-dependant. However, Mr Bernanke’s comments that the Fed funds rate ‘is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after the unemployment threshold is crossed’, indicate a slightly dovish turn. He had previously said that the rate could be hiked when the unemployment rate was ‘considerably below’ 6.5%.

Bernanke strikes a dovish note

The chairman’s comments around the Fed funds rate certainly seem slightly more dovish than traders had been expecting. However, there have been no moves in forward rate expectations, with the Fed fund future (June 2015) unchanged at 29 basis points. Meanwhile, the US ten-year bond has actually pushed up one basis point to 2.71%.

Impact of the GPIF review

Of course, in the forex market there are always two currencies involved, and while the US dollar has been the key driver behind the recent moves in USD/JPY, the yen has been in focus in European trade. Traders have been looking at the Government Pension Investment Funds (GPIF) review. The importance of this fund as a driver of the JPY can’t be stressed enough, given its sheer size: it controls $1.2 billion in capital. Any rhetoric around the assets it controls naturally has ramifications on the JPY, given the perception of external currency flows.

The GPIF press conference itself hasn’t really been a strong catalyst either way, and the comments have been viewed as a guide rather than a directive for significant change. There was a risk we might see buying in the yen, as expectations were fairly elevated. However, it seems the proposals announced are consistent with a weaker yen over the medium- and longer-term, although there has been some good buying of the yen against the euro. The fund is continuing to look at a higher allocation of capital to foreign markets, while guiding away from deflation-based strategy into something more growth-focused. 

Today’s drivers

Tactically, I like buying dips in the pair to 99.60, while a break of supply of 100.61 will bring out momentum-focused traders. In terms of drivers, at 1.30pm we get retail sales; existing homes sales are released at 3.30pm, and the FOMC minutes will be announced at 7pm (all London times). Traditionally the minutes have verged on the hawkish side, given that they contain the views of the non-voters on the board.

Spot FX USD/JPY chart

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.