Fed Rate Cut Sends USD/JPY Tumbling

  • Fed’s First Rate Cut in Over Four Years
  • Revised Downward Rate Outlook in Fed’s Dot Plot
  • Markets Await Fed Chair Powell’s Press Conference

On Wednesday, USD/JPY took a dive to 140.80 following the Federal Reserve’s surprising 50 bps rate cut. This move marks the Fed’s first rate cut in more than four years as US central bank policymakers rush to meet market expectations. Initially anticipated for March, investors were caught off guard by this preemptive action.

Fed’s Rate Outlook Revision

The Federal Reserve’s dot plot, a component of the Federal Open Market Committee’s Summary of Economic Projections, has been adjusted downward from the previous rate outlook. Median policy expectations now project the Fed Funds rate to reach 4.4% by the end of 2024 and 3.4% by the end of 2025, down from 5.1% and 4.1% respectively.

Key Economic Projections

Further scrutiny of the Fed’s notes reveals a forecast of 2.0% US Gross Domestic Product (GDP) growth through 2024, down from the previous projection of 2.1% in June. Additionally, Fed officials anticipate the US Unemployment Rate to stabilize around 4.4% by the end of 2024.

Market Focus on Powell’s Press Conference

With the Fed aligning its actions with market expectations for rate cuts, global markets are now eagerly anticipating Fed Chair Jerome Powell’s upcoming press conference.

USD/JPY 15-minute Chart

USD/JPY 15-minute chart

Japanese Yen FAQs

What Determines the Value of the Japanese Yen?

The Japanese Yen (JPY) is influenced by various factors including the performance of the Japanese economy, Bank of Japan’s policy, yield differentials between Japanese and US bonds, and trader sentiment.

Bank of Japan’s Currency Control

The Bank of Japan intervenes in currency markets to manage the value of the Yen, often to lower it. Their ultra-loose monetary policy has caused the Yen to depreciate against other currencies.

Policy Divergence and Yen Value

The BoJ’s policy divergence with other central banks, like the US Federal Reserve, results in a wider differential between US and Japanese bonds, favoring the US Dollar against the Japanese Yen.

Safe-Haven Status of the Japanese Yen

The Japanese Yen is considered a safe-haven investment, meaning investors turn to it during market instability for its perceived reliability and stability, strengthening its value against riskier currencies.

Stay tuned for more updates…

Shares: