USD/JPY plunges beneath 129.00 after Fed’s decision, after Powell’s presser

• USD/JPY was rejected at the 20-day EMA and collapsed as the Federal Reserve increased rates by 25 bps.
• Federal Reserve officials stated that more increases would be appropriate in 25 bps increments.
• Powell’s disinflationary comments tumbled US Treasury bond yields and sent the US Dollar into a tailspin.

USD/JPY is plummeting sharply after the US Federal Reserve decided to slow down the pace of rate increases and hiked rates by 0.25% on their first monetary policy meeting of 2023. Therefore, the US 10-year Treasury bond yield is plunging more than ten bps toward 3.40% as the market responds to the Fed’s decision and Powell’s speech. At the time of writing, the USD/JPY exchanges hands in a volatile session at around 128.50-129.20.

Some remarks of the Federal Reserve Chair Jerome Powell

At the time of typing, the US Federal Reserve Chair Jerome Powell’s press conference continues, and the US Dollar continues to weaken across the board.

In his press conference, Powell said it would be premature to declare victory on inflation and said that the job is not fully done. He acknowledged that “it’s a good thing that disinflation so far has not come at expense of the labor market.”

Powell added that the Federal Open Market Committee (FOMC) has not decided on a terminal rate, and if data becomes weaker, then the central bank would become data-dependant. He added the Fed has no desire to overtighten, but if they do, they have the tools to work on it.

When asked about discussions in the meeting, Powell said they were talking about a couple more rate hikes to get to an “appropriately restrictive stance.”

Summary of the Fed’s monetary policy statement

On Wednesday, the Federal Reserve policymakers decided unanimously to hike rates by 0.25%, lifting the Federal Funds rate (FFR) at around 4.50% - 4.75%. Additionally, they pushed back against the market’s expectations for a Fed pivot and said additional rate hikes would be appropriate. Policymakers forward guided the market, adding that future rate hikes would be in 25 bps increments, dropping the reference to the “pace” of additional rate hikes.

Fed officials acknowledged that inflation has “eased somewhat but remains elevated.” Participants added that indicators point to modest growth in spending and production and commented that the labor market remains robust. Fed members stated, “in determining the extent of future rate hikes, it will take into account cumulative tightening, policy lags, and economic and financial developments.”

USD/JPY reaction to the headline

The USD/JPY 15-minute chart shows the pair tumbled below 129.50 and broke support levels, like the S2 and the S3 daily pivot points, each at 129.32 and 128.90. Then, it continued towards the day’s low at 128.54, reversing its course and reclaiming the S3 pivot point. Then the USD/JPY tested the 20-EMA at 129.21 before resuming its downtrend. The USD/JPY, the first support level, would be the S3 pivot at 128.90, followed by the daily low at 128.54, and then the S4 daily pivot at 128.48.