USD/JPY dives as Powell put is reactivated
Aug 23 (Reuters) -USD/JPY fell sharply on Friday, once again breaking below 145 as Federal Reserve Chair Jerome Powell said the time has come for policy to adjust, which should brighten the mood of shorts in the pair following relatively hawkish BoJ comments.
Powell's unambiguously dovish speech pushed the odds of a 50bps September up to 34% from 28% 0#FEDWATCH.
Powell said that the Fed will do everything they can to support a strong labor market, which could leave markets with a sense that a Powell put has been activated.
Unlike his colleagues, who had signaled that the rate path should be gradual and methodical, Powell highlighted that the timing and pace of rate cuts will depend on incoming data. This indicates that the size of a September rate cut will be predominantly dependent on the next non-farm payrolls release.
While at present the data leans in favor of a 25bps cut, should next month’s labor market report show a material cooling, this would pave the way for step up to 50bps.
Elsewhere, Bank of Japan Governor Kazuo Ueda largely stuck to the hawkish script he adopted at last month’s post-decision press conference.
Thus, with Japanese rates pricing in 7bps of easing by year-end 0#BOJWATCH, it does appear that markets may be under-pricing policy tightening from the BoJ. Combining this with a dovish Fed does bode well for USD/JPY shorts.
For more click on FXBUZ
Fedwatch today https://tmsnrt.rs/471biLp
(Justin McQueen is a Reuters market analyst. The views expressed are his own.)
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