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USD JPY Exchange Rate Drops Following Subdued Fed Meeting

February 2, 2017 - Written by John Cameron

The USD JPY exchange rate fell to a two-week low this morning as the Federal Reserve voted to leave interest rates unchanged.

US Dollar Japanese Yen (USD JPY) Pressured by Dovish Fed Outlook

The US Dollar Japanese Yen (USD JPY) exchange rate dipped yesterday following as the Fed meet to discuss it monetary policy.

While the odds that the Fed would vote to raise interest rates at yesterday’s meeting, markets were hoping that Fed Chair Janet Yellen would possibly hint towards raising rates in March.

However investors ultimately came away disappointed as the Fed stuck a neutral stance towards future rate hikes, employing a ‘wait and see’ method.

Despite being relatively upbeat about the growth in the US economy, the central bank remains cautious regarding the new President, especially following the lack of clarity over his economic policies. As Tanweer Akram of Thrivent Financial explains;

‘Higher tariffs, restrictive immigration policies, and protectionism could have some harmful effects, though increased infrastructure spending and lower taxes could be beneficially. It remains to be seen what economic policies will enacted and how these will be implemented.’

Economists are now predicting that the first rate hike of the year will come in June, although there are growing doubts over whether the Fed will deliver on its promise of three rate hikes by the end of 2017.

Japanese Yen Strengthened by Trump Accusations

The Japanese Yen was also bolstered yesterday by comments from President Trump as he claimed that Tokyo was manipulating its currency to gain a competitive advantage over the US.

Trump accused the Japanese government of ‘global freeloading’ by using regulation to devalue the Yen in its trade deals with the US.

Japanese officials were quick to deny the claims however with Japan’s chief cabinet secretary,. Yoshihide Suga, stating that Trump’s criticism ‘completely misses the mark’ and that the Bank of Japan’s (BoJ) policies were mean to improve inflation.

Trump’s comments drove the US Dollar lower against the Yen as markets grow increasingly confused on whether the President seeks a weaker or stronger Dollar as his comments conflict with his desire for higher interest rates.

USD JPY Exchange Rate Forecast: US Employment Data Ahead

The USD JPY exchange rate could rally at the end of the week as the US releases its latest employment data. The ‘Greenback’ is likely to strengthen should Non-Farm Payrolls rise from 156k to 175k as forecast, although it is not expected to alter the Unemployment Rate which is predicted to hold at 4.7% possibly limiting the US Dollar’s gains.

Meanwhile Japan will release its latest Services PMI on Friday with the Japanese Yen likely to rise if activity in the services sector continues to improve.

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