USD/JPY Pair Plummets Following Powells Comments

The USD/JPY pair dropped by 420 or so points between the Asian and US sessions on Thursday, highlighting its vulnerability to US data and the dollar index (DXY).

Following last night’s speech by Federal Reserve Chair Jerome Powell, the decline gained momentum, and it persisted during the Asian session as Bank of Japan policymaker Asahi Noguchi’s remarks took on a hawkish twist.

Low-interest rates are expected to remain in place until April 2023, when Governor Kuroda’s term ends. However, remarks made by BoJ policymaker Noguchi tonight were the first indications that the institution is monitoring data in an effort to leave the low-rate environment.

Noguchi said that in order to raise wages, inflation expectations must grow, with a salary increase of about 3% required if the inflation objective is to be attained.

USD/JPY Pair Supported by Comments Out of Japan

If underlying inflation accelerates faster than anticipated, the BoJ may withdraw support in advance, according to Noguchi. Markets responded favorably to these remarks and others, which caused USD/JPY to print at a three-month low at the 135.53 mark.

Following Fed Chair Powell’s speech at the Brookings Institution, which covered inflation, employment, and the outlook for the economy, the US dollar index came under fresh selling pressure.

The Fed chair warned that the fight against inflation is far from finished but all but guaranteed a 50 bps increase for the Fed’s December meeting. After the speech, the likelihood of a rate increase of 50 basis points in December rose from 66% on Monday to 81% as of early Thursday.

The dollar index is now in a weak position and ended November with its worst monthly loss in 12 years.