USD/JPY, US Dollar, Japanese Yen, Federal Reserve – Talking Points
- Fed’s Waller calls for tapering of MBS before Treasuries, a view opposed by the Committee
- USD/JPY may look to reverse course in tandem with US yields, US 10Y down as low as 1.14%
- Stocks give up early gains into the closing bell, volatility and bonds remain bid
Surprise comments from Christopher Waller, a voting member of the Federal Reserve Board of Governors, gave light to a vocal minority at the Federal Reserve on Monday. Waller stated that should the next two jobs prints be very strong, a taper in September could happen. Waller continued to indicate his preference to taper mortgage-backed securities before Treasuries, a move which is opposed by the majority of the Federal Open Markets Committee (FOMC). The view of Waller contradicts that of Fed Chair Jerome Powell, who remains adamant that the Federal Reserve will support the economy “by any means necessary” until the economic recovery is complete.
A hawkish tone from a member of the Federal Reserve Board of Governors may be enough to see USD/JPY reverse its recent slide. USD/JPY extended its recent decline as US Treasury yields continued lower on Monday, with the 10-year Treasury yield falling as low as 1.15%. US Treasury yields may look to turn higher should the taper debate begin to gather momentum. Currently, the debate surrounding a taper is dependent on labor market conditions, as noted by Jerome Powell in his FOMC press conference last Wednesday. With inflation targets largely satisfied, the Fed is now looking for “substantial further progress” on the labor market front. The Fed’s taper has the potential to take significant downward pressure off of US yields, and as Christopher Waller noted, that lift could come as soon as September.
US Economic Calendar
Courtesy of DailyFX Economic Calendar
Near-term sentiment and policy decision making will depend on economic data, with nonfarm payrolls due this Friday. Economic data on Monday came in lower than expected, with the ISM Manufacturing Index dropping to 59.5 from 60.6, well below estimates of 60.9. Additional worse-than-expected economic prints in the US may continue to exert downward pressure on USD/JPY. Strong data prints, which may be unlikely given the spread of the Delta Covid variant, have the potential to provide a bid to the Greenback. In the near-term, market participants may look to Friday’s July jobs report for further insight into potential Fed policy and market direction.
USD/JPY Daily Chart
Chart provided by TradingView
— Written by Brendan Fagan, Intern
To contact Brendan, use the comments section below or @BrendanFaganFX on Twitter
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