USD/JPY retreats amid Fed’s hawkish hold, traders eye Powell’s speech

• Fed maintains interest rates; projects higher rates through 2024 with a federal funds rate adjustment to 5.10%.
• Cooler US inflation report pressures the Greenback, leading to a decline in USD/JPY.
• Fed's economic outlook: Stable growth at 2.1%, steady unemployment at 4%, with minor hikes in PCE and Core PCE inflation rates.

The USD/JPY retreated on Wednesday after the Federal Reserve's decision to keep interest rates unchanged while tilting slightly hawkish as Fed officials upward revised the federal fund's rates. However, a cooler-than-expected US inflation report weighed on the Greenback ahead of Fed Chair Jerome Powell's presser. The major trades at 156.26, down 0.55%.

USD/JPY drops 0.55% amid Fed's hawkish hold, cooler US inflation report

The Federal Reserve’s monetary policy statement highlighted that Fed officials do "not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent." They also stated that "the Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals."

Meanwhile, the Summary of Economic Projections (SEP) revealed that policymakers tilted slightly hawkish, as the median foresees the federal funds rate to end at 5.10% in 2024, up from 4.60% in March’s projections. The economy is expected to grow 2.1%, consistent with their March forecast, while the unemployment rate is projected to remain at 4%, unchanged from the previous SEP. PCE inflation is expected to rise slightly from 2.4% to 2.6%, and Core PCE inflation is projected to increase from 2.6% to 2.8%.

USD/JPY Reaction to Fed’s Decision - Hourly Chart

The USD/JPY bounced off daily lows at around 155.80 and edged above the 156.00 figure, but it was capped by the 100-Simple Moving Average (SMA) at 156.55. For buyers to extend its gains, they must clear the 100-SMA, and test the bottom of the Ichimoku Cloud at around 156.80/95. Further gains are seen above 157.00.