USD/JPY – Sharp Losses for Yen After Fed Hints at Rate Hike

USD/JPY is steady on Thursday, following huge gains by the pair a day earlier. At the start of the North American session, USD/JPY is trading at the 119 line. On the release front, US Unemployment Claims dropped to 287 thousand, beating expectations. Later in the day, the US releases the Philly Fed Manufacturing Index. There are no Japanese releases on Thursday, but the BOJ will release a policy statement early on Friday. An unexpected announcement could cause some movement from USD/JPY.

The Japanese yen took a tumble on Wednesday after the Federal Reserve policy statement. Previous Fed policy statements have usually stated that the Fed would maintain low rates for a “considerable time”, but the December statement changed emphasis, saying the Fed would be “patient” before raising rates. In a follow-press conference, Federal Reserve chair Janet Yellen was less ambiguous, saying that the Fed was unlikely to raise rates for the “next couple of meetings”. The markets took this to mean that a rate hike is in the works, but not before April. The yen was down sharply on the news as USD/JPY gained about 130 points on Wednesday.

Prime Minister Shinzo Abe received a new mandate on the weekend, as the ruling Liberal Democratic Party swept to victory in parliamentary elections, winning a comfortable majority in the lower house of parliament. However, Abe has been hard-pressed to prop up the weak economy and he was recently forced to scrap a controversial sales tax hike. Growth and inflation remain well below the government’s target and the BoJ’s radical monetary easing scheme has ravaged the yen, which remains close to the 120 level. With the BOJ expected to maintain or even ease its monetary stance, we’re unlikely to see much improvement from the Japanese currency in the near future.

USD/JPY 118.99 H: 119.00 L: 118.26