USD/JPY: Dips Below 102 On Fed Statement

 | Jun 20, 2014 01:36AM ET

The Japanese yen has taken advantage of broad dollar weakness following the Federal Reserve policy statement on Wednesday. Late in the European session, the pair is trading below the 102 level. On the release front, there are two key events in the US - Unemployment Claims and the Philly Fed Manufacturing Index. In Japan, All Industries Activity slumped in May, posting its sharpest decline in three years. Early on Friday, BOJ Governor Haruhiko Kuroda will speak at an event in Tokyo.

There were no surprises from the BOJ minutes, which showed that the BOJ planned to continue expansion of the monetary base at its current level of JPY 60-70 trillion per year. This follows remarks from BOJ Governor Haruhiko Kuroda last week, who noted that the easing measures have led to the economy moving in the right direction. However, the monetary moves have hurt the yen, which continues to trade at very high levels against the dollar, and this trend is likely to continue.

The Federal Reserve continued to trim its QE program, reducing the scheme by $10 billion, to $35 billion/month. If all goes as planned, the Fed could wind up QE in the fall. The Fed also hinted that interest rates will continue to stay low for the foreseeable future, which likely means that we won't see any rate hikes before the first quarter of 2015. With regard to economic activity, the Fed noted that the recovery is continuing, but it reduced its forecast of economic growth to 2.1-2.3%, down from an earlier forecast of around 2.9 percent. The bottom line? There were no dramatic items in the Fed statement, with one analyst describing current Fed policy as "steady as she goes".

The news out of the US was mixed on Tuesday. Building Permits dropped to 0.99M, well below the estimate of 1.07M. On the inflation front, CPI moved up modestly, posting a gain of 0.3%. This was the strongest gain we've seen since January 2013. CPI followed suit, climbing to an eleven-month high. The index rose to 0.4%, beating the estimate of 0.2%. The Fed policy statement took note of the weak inflation levels, which are nowhere near the Fed's target of 2%.