Naoto Arase, Head of the Fintech Department at PPLS.
Recent remarks by Federal Reserve regional bank presidents following the recent Federal Open Market Committee (FOMC) meeting were generally dovish, putting short-term pressure on the US dollar-Japanese yen (USD/JPY) currency pair.
At the FOMC press conference on November 2, Fed chairman Jerome Powell expressed caution, saying he was not yet confident that overall financial conditions were sufficiently restrictive to bring inflation down to the two per cent target.
However, he also recognised that the long-term rise in interest rates was having a tightening effect, and that the market had reacted to his dovish stance with a weaker dollar.
Federal Reserve Bank of Atlanta president Raphael Bostic said “the current state of the US economy indicates that further interest rate hikes are no longer necessary” and that “our policy rate is at a sufficiently restrictive position to get inflation down to two per cent”.
Federal Reserve Bank of Minneapolis president Neel Kashkari said the October employment data “suggests that the labour market is slowing, which we’re looking for” and would help lower inflation.
He added that while it “gives us more comfort that the economy is moving back into balance”, all indicators would continue to be monitored because “we will not overreact to one employment statistic”.
However, the market interpreted his remarks as indicating that the need for further interest rate hikes would be low if indicators remained stable.
The US employment statistics released on November 3 that contributed to the FOMC’s cautious attitude also continued the weakness of the dollar.
In the US interest rate futures market, the probability of a rate hike in December is less than 10 per cent, with the probability of a rate hike in January also around 10 per cent.
It is thought that unless there are clear signs of a resurgence in inflation, the US will maintain the current interest rate level and enter a phase of timed interest rate cuts next year.
Considering the aforementioned, while a decline in the dollar/yen exchange rate can be expected in the short term, it can still be judged to be bullish in the medium to long term.
While the trend is currently down, it can be expected to rebound later this week, possibly reaching 151 or higher.
