Yen calm ahead of Fed minutes

The Japanese yen has edged lower on Wednesday. In the North American session, USD/JPY is trading at 134.75 down 0.20%.

Fed’s Bullard calls for more aggressive policy

Fed member Bullard has called for the Fed to deliver rate hikes more quickly in order to beat inflation. Bullard has hawkish views on rate policy and has said he was in favor of a 50-basis point hike at last week’s meeting, in which the Fed raised rates by a modest 25 basis points. Bullard has said that he is in favour of a 50-bp increase at the March meeting, but his view is in the minority – CME’s FedWatch has pegged a 25-bp increase at 79% and a 50-bp hike at 21%.

The Fed releases the minutes of its February meeting later on Wednesday. Fed members opted for a modest 25-basis point hike, but members Bullard and Mester said that they had pushed for a 50-bp increase. The markets will be interested in the extent of support for a 50-bp hike at the meeting, as it is a useful gauge of what we can expect at the March meeting.

It was just a few weeks ago that the markets were expecting a pause from the Fed after March, with rate cuts before the end of the year. Those expectations have been dashed by sharp US data, including a sizzling employment report, strong retail sales and a CPI release that was higher than expected. The batch of strong numbers has forced the markets to move closer to the Fed’s stance, and Goldman Sachs and the Bank of America are forecasting three more rate hikes in 2023.

In Japan, January’s services producer price index ticked up to 1.6% y/y, compared to 1.5% in December. Investors will be keeping a close eye on National Core CPI which will be released on Friday. The January estimate stands at 4.3%, following a 4.0% gain in December. Higher inflation will put more pressure on the Bank of Japan to tighten policy, although it is a very sensitive period, with Kazuo Ueda taking over as Governor in early April.

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USD/JPY Technical

• There is resistance at 135.75 and 137.35
• 1.3418 and 1.3350 are providing support

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A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.

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• Source: https://www.marketpulse.com/20230222/yen-calm-ahead-of-fed-minutes/