- USD/JPY has been pressured this week and unable to keep hold of the 108 handle.
- FOMC minutes do little to disturb the status-quo in markets, negative rates not on the cards.
USD/JPY is currently trading at 107.45 within the day's range of between 107.33 and 107.98, losing 0.22% at the time of writing. The Federal Open Market Committee minutes were released where markets were looking for signs of any leaning towards negative rates between members.
"Respondents to open market desk surveys discussed in April meeting saw almost no probability to the FOMC implementing negative policy rates", the minutes stated. The minutes also noted that "members also agreed coronavirus would weigh heavily on economic activity, employment, and inflation in the near term, and posed considerable downside risks to the economic outlook over the medium term."
Eyes on US yields
Meanwhile, USD/JPY has been pressured this week and unable to keep hold of the 108 handle with the US dollar unwinding some safe-haven investment amid hopes the global economy may be starting to show signs of recovery. However, what is clear is that the markets are not fully buying the optimism. Gold and then yen are solid. Also, the bond market paints a thousand words that FX can not and it's all one way – pointing to negative yields.
While Fed Chair Jerome Powell explained that the Fed is ready to use its 'full range of tools' to support the economy and is seeking to avoid the prospects of negative rates, the closer to zero that the US 5-years yields get, the more likely that the global recession will be prolonged and that rates are indeed heading to zero. The bond market is telling. The US 5-years are trading at 0.318/0.357% today, down from 1.69 at the start of the year.
With a combination of geopolitics and COVID-19's impact on the global economy, the risks are overwhelming. "There is no replacement for the dollar in many respects which will make it hard to justify a prolonged unwind in the near future, at least," – so it's a double-edged sword.
Powell has also said that both the US Congress and the Federal Reserve may need to do more to support the economy but refused to take part in the ongoing political discussions on a new emergency spending package, which the Republicans and the Democrats disagree on.
In other recent topical headlines, US President Donald Trump said yesterday that he expects 'a really great third quarter' in terms of GDP growth, partly because the US is now testing more people. The US Congressional Budget Office has updated its economic projections and expects a GDP decline of 11% q/q in Q2 (38% in annualised terms). US Treasury Secretary Mnuchin said that the Treasury is ready to 'take losses' on its USD500bn rescue fund.
It is a mixed bag of all sorts, and for that reason, the dollar is choppy and markets are buying up the yen due to the risk-off Yen function; and that is because it runs current-account surpluses.
USD/JPY levels
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USD/JPY levels
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