Japanese Yen Falls As Fed Minutes Revive Tightening Bets

The Japanese Yen (JPY) depreciates by over 0.26% against the US Dollar (USD) on Wednesday within familiar levels, as the Federal Reserve's (Fed) last meeting minutes showed that the majority of participants indicated that “some policy firming would likely be warranted.” The USD/JPY pair trades at 162.54 after bottoming near 162.03.

USD/JPY weakens as hawkish Fed minutes lift Dollar and yields

Market mood is mixed, following US President Donald Trump's change of tone, turning more hawkish against Iran’s behavior, threatening to escalate the conflict. This boosted the Greenback as the US Dollar Index (DXY) reclaimed the 101.00 figure.

Digging into the US central bank’s minutes, all officials supported leaving rates unchanged and saw a stable labor market. Most participants “preferred” not to use the previous language, pointing to scenarios in which prices would remain elevated due to AI-infrastructure demand.

Worth noting that several participants remarked that they did not see the current policy stance as restrictive, while a few others commented that they saw it as slightly restrictive.

In the meantime, money markets have priced in an 18% chance of a 50-basis-point (bps) rate hike at the September meeting, while the chances of a 25-bps rate hike are close to 52%.

Meanwhile, the US 10-year Treasury yield, which is positively correlated with the USD/JPY pair, is rising by 1.5 basis points to 4.569%, suggesting traders are eyeing further tightening.

Aside from this, USD/JPY extended its gains and it remains above the 162.00 mark. A breach of the July 1 high of 162.84 clears the door towards 163.00. On further strength,  the next area of interest would be 165.00 ahead of the psychological 170.00 figure.