Continuing factors of the strength of the US dollar brought the price of the US dollar against the Japanese yen quickly back to the vicinity of levels. These are levels that increased talk at the time of the possibility of a Japanese intervention to prevent further collapse of the Japanese yen.
- The USD/JPY is stable around the resistance 144.88, its highest in 24 years.
- The currency pair returned to the top a short time ago, after a sharp sell-off.
- It was subjected to a quick Japanese intervention that toppled the currency pair towards the support level 140.35.
- This is amid the path of a strong tightening of the US central bank, the US dollar will continue to reap record gains.
Interest Rates to Restore Stability
Yesterday Federal Reserve officials said they need to keep raising interest rates to restore price stability, as St. Louis Fed President James Bullard warned that their credibility was at stake. "This is a serious problem and we have to make sure we respond appropriately to it," Pollard said at an economic conference in London on Tuesday. And “we have increased the policy rate significantly this year, and there are more increases indicated,” in the Fed’s latest forecast.
Chicago Fed President Charles Evans and Neil Kashkari of Minneapolis echoed his commitment to bringing inflation back to the Fed's 2% target, who said the US central bank should implement the rate increases they had projected and then keep them there to bring price pressures to heel. Their comments confirm Bank Governor Jerome Powell's message last week that they will not hesitate to tackle inflation despite the pain inflicted on the US economy - a tough stance that has roiled financial markets and contributed to a sharp rise in bond yields.
For their part, Federal Reserve officials raised US interest rates by 75 basis points on September 21 for the third consecutive meeting, raising the target for the federal funds rate to a range of 3% to 3.25%. Median projections show that officials expect rates to reach 4.4% by the end of this year and 4.6% in 2023, a much tighter turnaround in their so-called point plot than expected. The St. Louis Fed official said interest rates may need to move to the “4.5% band,” or about one percentage point higher than its April forecast, citing the policy committee’s latest forecast, as well as the recommended policy rate from a revised rate. A copy of the Taylor Rule, a guideline developed by John Taylor of Stanford University.
"We are now at the point where we can say we are in a restricted area," Pollard added. Referring to the rate path laid out in the Fed's points chart, he said, "I think we need to stay at this high rate for some time to make sure that we manage to get the inflation problem under control."
Expect Further increase
Federal Reserve officials indicated that they expect an increase of another 1.25 percentage points from the last two policy meetings of the year in November and December, according to their median forecast. Investors are now expecting a fourth straight increase of 75 basis points at the November 1-2 meeting, according to futures prices. Pollard added that the United States is facing recession risks. But he underestimated the threat to financial markets by the inverted shape of the yield curve - where shorter-term securities yield more returns than older ones. He also said, "You expect the yield curve to invert on the basis of nominal expectations, not necessarily on the basis of forecasting recessions." And, "It is encouraging that inflation expectations are in place."
Technical analysis of the currency pair:
USD/JPY is back to the top of its 145.00 range, a major psychological mark after a choppy wave during the Japan currency intervention. The price may be back to the bottom if the ceiling continues again. The 100 SMA is above the 200 SMA, which indicates that the general trend is still bullish, and that the resistance is more likely to break than hold. If that happens, the USDJPY may be in an uptrend with the same height as the rectangle or about 350 pips.
Stochastic is still moving down to show that there is some selling pressure ahead. Despite this, the oscillator is approaching oversold territory, so sellers may run out soon. The RSI has more room to slip before it reverses exhaustion among sellers and signals a return of upward pressure. The dollar quickly regained strength after the Japanese Ministry of Finance intervened in the forex market, as traders are likely to raise interest rates from the Federal Reserve. Meanwhile, the Bank of Japan refrained from making policy adjustments in its interest rate decision last week, opting to keep interest rates on hold instead.