USD/JPY finally breaks free from consolidation

USD/JPY is flat but overall bid vs. prior consolidative markets from overnight. The pair has but inching higher in a grind that has seen the biggest spike in the hourly time frame since the move. Volume is returning in Asia but that is not to say they will continue with there being holiday markets again on Friday in the US with a half day on Wall Street.

The softer US dollar tone and firmer equity mood that prevailed after the US PMIs and FOMC minutes extended to Asia-Pacific markets Thursday and are set to continue to do so on Friday in the absence of a fresh catalyst. US treasury bond markets were closed on Thursday but futures did trade, giving some guidance to forex. The 10-year yield fell  3bp to 3.67% for instance, weighing on the greenback initially before bulls started to move in. Nevertheless, markets are still currently pricing in the Fed funds rate to be 55bp higher at the next meeting in December, peaking at 5.02% in May 2023 after the minutes of the Nov. 1-2 meeting showed officials were largely satisfied they could now move in smaller steps.

In other key statements, the minutes showed that a slower pace of rate hikes would better allow the FOMC to assess progress toward its goals given the uncertain lags around monetary policy. A few participants said slowing the pace of rate hikes could reduce the financial system risks; others that slowing should await more progress on inflation.

The dollar index DXY, which measures the greenback against six major peers, was down 0.2% at 105.85 in Tokyo trade, after sliding 1.1% on Wednesday. As Reuters noted, ''the Fed has taken interest rates to levels not seen since 2008 but slightly cooler-than-expected US consumer price data has stoked expectations of a more moderate pace of hikes.'' Consequently, the US Dollar index slide 5.2% in November, putting it on track for its worst monthly performance in 12 years.