At the annual meeting in Jackson Hole, top officials of the Federal Reserve and the Bank of Japan made the following policy statements:
On the Fed side:
Fed Chairman Jerome Powell signaled that interest rates will remain high and could rise further if the economy and inflation don't cool more.
Powell admitted that the economic background is now more favorable than a year ago. But he also made it clear that the U.S. central bank is ready to keep raising interest rates if needed, noting that a robust economy entails risks of accelerating inflation again.
The Fed is likely to keep rates unchanged at its meeting on September 19-20, with the possibility of more hikes later this year.
The strong economic growth and recovering labor market may require more decisive actions. Further evidence of persistent above-trend growth could put future progress in fighting inflation at risk and warrant further monetary policy tightening, Powell said.
In other words, if the U.S. economy and employment continue to strengthen further, it will be a condition for maintaining or even tightening monetary policy.
All these Fed statements could result in further strengthening of the U.S. dollar.
The Bank of Japan, on the other hand, made the opposite statement.
BOJ Governor Kazuo Ueda reiterated the need to maintain low interest rates for sustainable growth of the Japanese economy.
Ueda said the price growth rate remains lower than the central bank's target, so it is necessary to continue its current monetary policy strategy.
As Ueda stated, core inflation in the country is still slightly below the 2% target. Therefore, the central bank will stick to its current monetary easing program.
How can we use it?
There are multidirectional actions of the U.S. and Japanese regulators, as a result of which the U.S. dollar tends to strengthen, while the Japanese yen tends to be at least neutral, and at most to weaken.
This means that the USDJPY currency pair is likely to rise over the next two to three months.
Final recommendation:
Buy USDJPY with further profit or loss taking in two months.
This content is for informational purposes only and is not intended to be investing advice.
