USD/JPY – Yen Edges Lower, Fed Rate Statement Looms

The Japanese yen has edged lower, as the yen continues to show limited movement. USD/JPY is slightly below the 106 line. On the release front, Japanese Revised Industrial Production slipped to 0.5%, within expectations. In the US, today’s highlights are Core Retail Sales and Retail Sales. The estimate for both reports stands at 0.4%.
USD/JPY continues to show little movement, but the yen has recorded strong gains against the euro and the British pound. EUR/JPY and GBP/JPY are at 3-year lows, in response to continuing uncertainty over the Brexit referendum, as the “Leave” camp has gained strength in recent polls.
Japan is extremely concerned about a strong yen, and on Tuesday, Japanese Finance Minister Taro Aso on Tuesday sent a fresh warning that Japan would “firmly respond” against speculative moves in the currency markets. The US is staunchly against any unilateral currency intervention by Japan, and the countries’ finance ministers were involved in a public spat over this issue at the recent G-7 meeting in Tokyo.
The markets are keeping a close eye on the Federal Reserve’s policy meeting, which will conclude with a rate statement on Wednesday. The markets have written off a rate hike in June, while a July move remains unlikely, according to the CME Group. The chances of a June hike are just 1.9% compared to a 26.3% in May. The chances of a July hike is 17.9%, compared to 43.2% in May. The sharp drop in market sentiment for a rate hike can be attributed to the dismal US Nonfarm Payrolls report as well as some back pedaling by Fed over the past few weeks. Back in April, Fed chair Janet Yellen had renewed hopes of rate hike in the summer, when she said that she expected a rate hike in “the coming months”. Since then, Yellen has sounded more cautious, and in a recent speech she was careful to avoid a time frame regarding a rate hike. To be fair, the Fed has made a strong effort to communicate clearly with the markets, and has stated that the timing of a rate hike would be data-dependent. With the US economy posting some mixed numbers and inflation levels remaining at low levels, it should not come as a surprise that the Fed may stay on the sidelines until September or even later. Although it’s extremely unlikely that the Fed will make a move in June, the markets will be carefully monitoring the rate statement, looking for some clues regarding a July rate hike.

Source: Actionforex.com