USD/JPY steadies as Greenback holds firm ahead of Powell’s speech
- USD/JPY steadies as the Greenback holds firm on Tuesday ahead of Powell’s remarks.
- US S&P Global PMIs eased in September but stayed comfortably in expansion territory.
- Fed’s Goolsbee rules out larger cuts, describing policy as only mildly restrictive.
The Japanese Yen (JPY) trades under modest pressure against the US Dollar (USD) on Tuesday, with USD/JPY trimming earlier losses as the Greenback holds firm on steady US economic data and cautious Federal Reserve (Fed) rhetoric.
At the time of writing, USD/JPY is trading around 147.80 during American trading hours after briefly dipping to an intraday low of 147.51. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, is hovering near 97.38 as traders await remarks from Fed Chair Jerome Powell, scheduled for 16:35 GMT, for fresh monetary policy cues.
Japanese financial markets were closed earlier in the day for the Autumnal Equinox holiday, which limited activity during Asian hours. Trading volumes normalized in the European and US sessions, leaving the pair primarily driven by Dollar dynamics and Fed signals.
In the US, the S&P Global Composite Purchasing Managers Index (PMI) eased to 53.6 in September, missing forecasts of 54.6 and down from 54.6 in August. Manufacturing held at 52.0, while Services printed 53.9, both signaling slower momentum but still firmly in expansion. The data suggested that while momentum has cooled, the US economy continues to expand at a steady pace.
S&P Global’s Chief Business Economist Chris Williamson noted that while tariffs are still driving up input costs in both manufacturing and services, fewer firms are able to raise selling prices to offset them. He said this suggests company margins are being squeezed, but also points to a potential moderation in inflation pressures.
The Greenback also drew support from cautious remarks by Fed officials. Chicago Fed President Austan Goolsbee added that while rates could come down if inflation continues to ease, he is not considering larger 50-basis-point moves, describing current policy as only mildly restrictive.
On the Japanese side, the Bank of Japan (BoJ) kept policy unchanged at its meeting last week, but expectations for an October hike are gradually building. ING now puts the probability of a move at around 52%, as markets brace for the central bank to act sooner rather than later. Attention will also turn to the Jibun Bank flash PMIs due on Wednesday, followed by the BoJ meeting minutes on Thursday, which could offer more clues on the policy outlook.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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