USD/JPY: Dollar Edges Lower And Drops Below 99 Level

 | Sep 23, 2013 08:12AM ET

The USD/JPY has edged lower in Monday trading. The pair dipped below the 99 line, as the dollar remains under pressure following the Federal Reserve decision not to taper QE. In economic news, it’s a quiet start to the new week, as the Japanese markets are closed for a holiday. In the US, there is just one economic release, Flash Manufacturing PMI.

The markets continue to try and recover their composure after the US Federal Reserve stunned the markets in deciding not to taper QE at its policy meeting on Wednesday. Most analysts had expected the Fed to announce a scaling down of the present bond-buying program of $85 billion/month by as much as $15 billion each month. However, the Fed decided to stay the QE course for now, stating that the US economic data was not strong enough to warrant QE tapering at this time. The Fed also downgraded its forecast for the economy, estimating GDP growth for 2013 at 2.0-2.3%, down from 2.3-2.6% in an earlier forecast. It also lowered its outlook for 2014 from 2.9%-3.1%, down from 3.0-3.5%. USD/JPY was up about a cent following the Fed announcement.

Overshadowed by the FOMC Statement were some excellent US releases on Thursday. Unemployment claims came in at 309,000 well below the estimate of 331,000. Existing Home Sales rose to 5.48 million, crushing the estimate of 5.27 million, and posting its best level in over three years. The Philly Fed Manufacturing Index rocketed from 9.3 to 22.3 points, its best showing since May 2011. Perhaps if we’d seen this kinds of numbers a week or two ago, the Fed might have introduced QE tapering. The strong numbers helped the US dollar wipe out the losses it sustained on Wednesday.

In Japan, BOJ Governor Haruhiko Kuroda sounded upbeat about the Japanese economy on Friday, saying that improving economies in the US and Europe would bolster Japanese exports and output and lead to an increase in capital expenditure. The BOJ has embarked on a radical monetary platform, which has included sharp increases to the money base in order to achieve 2% inflation. After years of deflation which have hobbled the economy, there are signs of inflationary trends and stronger economic data, although the 2% inflation target will take some time to reach.