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Traders Eye Yellen as Yen Gains Traction

David Becker
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Traders Eye Yellen as Yen Gains Traction

The Fed’s Yellen testifies before the Joint Economic Committee of Congress on Wednesday. Her comments are not expected to deviate much in substance from the FOMC’s statement last month. Yellen has already steered the FOMC away from the 6.5% unemployment threshold, and discussed the FOMC’s view of a broader understanding of the labour market. The Yen gained ground on the back of continued risk off and falling US yields, moving down to support levels near 101.30

USD/JPY fell below 101.50 for the first time in three weeks. Hefty Nikkei losses amid a general risk-off environment along with the minutes to the Apr 7-8 BoJ supported the yen. The minutes signaled that the central bank does not see that an expansion in its already aggressive policy would be necessary. Former BoJ executive director Hayakawa also warned that further BoJ easing would only bring forward a collapse in JGBs, and that the central bank was in any case already winning the battle to drive CPI higher.

BoJ minutes to the April 7th-8th policy meeting showed that the board voted unanimously to leave policy unchanged, leaving the overnight rate at 0.1% and the annual increase in the monetary base at 60-70 trillion yen. The minutes showed that the board agreed that consumer spending remains buoyant following an increase in the sales tax rate in April, as the labour market is tight and wages have been improving. At the BoJ’s April 30th meeting, the central bank also left policy unchanged, as it has since April 2013, and also predicted that CPI inflation would rise to 1.9% y/y.

The USDJPY is testing trend line support near 101.30. Resistance is seen near the 10-day moving average at 102.15. Momentum has turned negative with the MACD (moving average convergence divergence generating a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.

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