USD/JPY remains depressed below 153.00 with the Fed’s decision on tap

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The Yen holds gains despite the moderate US Dollar recovery on Wednesday. The USD/JPY remains capped below the 153.00 level, trading at 152.45 at the time of writing, with three-week lows at 152.16 at a short distance ahead of the US Federal Reserve’s (Fed) monetary policy decision.

The US Dollar hovers around 152.50, right above three-month lows at 152.15.
Trump's comments increased pressure on the Greenback on Tuesday.
Investors have trimmed US Dollar shorts, awaiting the Fed's decision.

The US central bank is widely expected to leave rates on hold and hint at a steady monetary policy in the near-term. Investors, however, will be eager to know what will happen when Chairman Powell steps down in May, as President Trump has already anticipated his willingness for much lower borrowing costs.

The US Dollar has lost more than 4% against the Yen since last Friday, when news reporting USD/JPY rate checks by the Fed and the Bank of Japan (BoJ) raised the alarm of a coordinated intervention to support the Yen and prompted speculative traders to scale down their USD short positions.
On Tuesday, US President Donald Trump gave the Greenback another beating, praising the current US Dollar depreciation and sending the pair to its lowest levels since late October.

In Japan, the minutes of December’s BoJ meeting confirmed the bank’s commitment to gradual monetary tightening, as committee members see the upward trends in underlying inflation and wage growth as durable. This has offset investors’ concerns about Japan’s fiscal stability, underpinning the JPY’s recovery.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.