JAPANESE YEN TALKING POINTS

USD/JPY fails to extend the series of higher highs & lows from earlier this week even as the Federal Open Market Committee (FOMC) Minutes fuel bets for above-neutral interest rates, and the exchange rate may continue to threaten the bullish trend from earlier this year amid the ongoing shift in retail interest.

SHIFT IN USD/JPY SENTIMENT PERSISTS EVEN AS REBOUND STALLS

The reaction to the FOMC Minutes fosters a bullish outlook for USD/JPY as Chairman Jerome Powell & Co. adopt a more hawkish tone, and the central bank may show a greater willingness to extend its hiking-cycle as a number of officials ‘judged that it would be necessary to temporarily raise the federal funds rate above their assessments of its longer-run level in order to reduce the risk of a sustained overshooting of the Committee’s 2 percent inflation objective or the risk posed by significant financial imbalances.’

The fresh remarks suggest the FOMC may overshoot the current trajectory for the Fed Funds rate even as the transition in U.S. trade policy clouds the outlook for growth, with rising tariffs likely to sap purchasing power for households and businesses as they face higher import costs. In response, the Federal Reserve may warn of an imminent rate-hike at the next interest rate decision on November 8, and the hawkish forward-guidance for monetary policy may continue to keep USD/JPY afloat especially as the Bank of Japan (BoE) sticks to its Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control.

Keep in mind, the recent pickup in volatility has spurred a shift in retail interest as traders appear to be fading the selloff from the October-high (114.55), and the current environment may continue to produce gyrations in USD/JPY sentiment as the rebound in the exchange rate has largely been accompanied by a pickup in risk appetite.

The IG Client Sentiment Report shows 58.5% of traders are net-long USD/JPY, with the ratio of traders long to short at 1.41 to 1. The percentage of traders net-long is now its highest since August 13 when USD/JPY traded near the 110.70 region. The number of traders net-long is 9.0% higher than yesterday and 63.3% higher from last week, while the number of traders net-short is 3.3% lower than yesterday and 11.8% lower from last week.