USDJPY reacts to Fed monetary policy and possible changes in Japan

14 December 2023 167
USDJPY reacts to Fed monetary policy and possible changes in Japan

The USDJPY currency pair started Thursday's trading session with a decline. The dollar exchange rate shows negative dynamics after the meeting of the Federal Reserve System (Fed). According to the Fed's representatives, the cycle of interest rate hikes in the U.S. is likely over, and cuts in borrowing costs will take place as early as 2024.

A day earlier, Fed Chairman Jerome Powell announced the end of the course of monetary policy tightening in the country. Now, the Federal Reserve plans to reduce the cost of borrowing by next year.

According to Matt Simpson, an analyst at City Index, policymakers' comments at the Fed's meeting will exceed the release of data on personal consumer expenditures in the U.S. in the coming week. Such an outcome of events will contribute to further decline in the U.S. currency, said the expert.

According to CME FedWatch, markets estimate the probability of monetary policy easing in March 2024 at 75% versus previous values of 54%.

The recent publication of economic indicators has strengthened investors' expectations of a soft landing of the U.S. economy. However, Powell does not deny the possibility of its tightening in case of emergency.

Meanwhile, Japan's political scandal may weaken an influential group in the ruling party that supported big monetary stimulus. This may ease the Bank of Japan's goal of pulling the economy out of years of ultra-low interest rates.

Prime Minister Fumio Kishida on Wednesday announced he would make changes to his cabinet to minimize the fallout from a funding scandal. It happened amid declining support for his administration.

This political turnaround comes at an important moment for the Bank of Japan. The bank is preparing to abandon ultra-low interest rates because of rising inflation and wages. The majority of market participants expect negative rates in Japan to end next year. These expectations may support the Japanese currency.

USDJPY quotes are forming a new downtrend on the H4 timeframe. In terms of wave analysis, the price is in the process of forming the third downward wave on the H1 timeframe. The breakdown of the top of the first wave at 141.60 has already occurred. The downward movement may intensify in the near term.


The short-term outlook for USDJPY is to sell.

The target is at the level of 137.00.

Part of the profit should be fixed near the level of 139.60.

A Stop-loss should be placed at the level of 144.00.


The bearish trend has a short-term character, so the trade volume should not be more than 2% of your balance. 

This content is for informational purposes only and is not intended to be investing advice.

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