USD/JPY drops post Fed decision, as US Dollar and US yields plummet

• USD/JPY dives following the Federal Reserve’s pivot to dovish stance.
• US economic data, including solid Retail Sales and a tight Initial Jobless Claims report, took a backseat amid the Goldilocks scenario.
• Upcoming events include Japan's Flash PMIs for December, with a focus on next week's Bank of Japan's (BoJ) monetary policy meeting.

The USD/JPY edges down following Wednesday's Federal Reserve’s (Fed) decision, which sent US Treasury yields plummeting alongside the Greenback. Fed’s adopting a dovish stance is the main reason for the pair to print losses of 0.68%, as it trades at around 141.89.

Traders continued to digest the Fed’s pivot after repeating the mantra that they would keep rates “higher for longer.” Even though inflation is slowing at a solid pace, it remains elevated, reaffirmed by the US central bank on its monetary policy statement. But officials downward revising the fed funds rates (FFR) for 2023 to 5.4%, along with expectations for three rate cuts in 2024, were the green light for investors seeking risk.

Despite that, they remained cautious ahead of Powell’s words, but failure to push back against 100 bps of rate cuts, was the last nail in the coffin for a strong US Dollar. The US Dollar Index (DXY), which tracks the Greenback’s performance against six currencies, has tumbled close to 1.80%, down at 101.94.

Another factor that’s influencing the USD/JPY pair is the plunge of the 10-year benchmark note rate, closely correlated with the major. The US 10-year Treasury yield has dived 26 basis points to 3.924%.

Meanwhile, US economic data took the backseat despite US Retail Sales being solid. That and a tight Initial Jobless Claims report for the week ending December 9 reaffirmed the Goldilocks scenario.

Ahead in the calendar, the Japanese economic docket will feature Flash PMIs for December, which could barely move the needle on the Japanese Yen (JPY) front. Traders are eyeing next week’s Bank of Japan’s (BoJ) monetary policy meeting. Although market participants don’t expect the end of negative rates, the BoJ could lay the ground ahead of pulling the trigger.

On the US front, Flash PMIs, Industrial Production and the beginning of the release of Manufacturing Indices revealed by Fed’s Regional Banks, are expected.

USD/JPY Technical Levels