Japanese Yen picks up within intervention levels with all eyes on the Fed

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USD/JPY eases to 160.20 but remains at intervention levels above 160.00.
Hopes of a US-Iran peace deal and caution ahead of the Fed's decision are keeping USD rallies subdued.
Upbeat Japanese macroeconomic data has failed to support the JPY on Wednesday.

The Japanese Yen (JPY) nurses mild gains against the US Dollar (USD) on Wednesday, as the USD/JPY pair eases to 160.20, still above 160.00, considered the limit of tolerable JPY weakness for Japanese authorities. A moderate risk-on mood amid the US-Iran peace deal and caution ahead of the Federal Reserve’s (Fed) decision keep USD rallies subdued.

The Fed is widely expected to keep its monetary policy unchanged in Chairman Kevin Warsh’s first meeting. Investors will be attentive to Warsh’s press release to spot the differences with his predecessor, Jerome Powell, who maintained his position as a voter on the committee.

Markets will also have the bank's economic and interest rate projections to assess the near-term direction of the bank's monetary policy. Market rumours, however, suggest that Chairman Warsh might refrain from participating in the “Dot Plot.”

Meanwhile, hopes of a lasting peace in the Middle East are feeding a mild appetite for risk, adding pressure on the Greenback. US President Donald Trump affirmed on Tuesday that he expects to leave the war ”in the rearview mirror." Iranian officials, on the other hand, have vowed a “hard response” to Israel's attacks in Lebanon, keeping investors on their toes.

In Japan, data released on Wednesday has shown a narrower-than-expected trade deficit in May, as exports rose beyond expectations, while Machinery Orders posted another positive surprise. The impact on the Yen, however, was minimal. Earlier in the week, the Bank of Japan (BoJ) hiked interest rates to a 31-year high of 1%, still well below the rest of the major central banks, which is acting as a headwind for a significant Yen reversal.

Economic Indicator

Fed Interest Rate Decision

The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).

Economic Indicator

FOMC Press Conference

The press conference is about an hour long and has two parts. First, the Chair of the Federal Reserve (Fed) reads out a prepared statement, then the conference is open to questions from the press. The questions often lead to unscripted answers that create heavy market volatility. The Fed holds a press conference after all its eight yearly policy meetings.