• USD/JPY fell to a new daily low of 134.83 after the Fed’s dovish hike.
• Federal Reserve officials voted unanimously for a 25 bps rate hike.
• Policymakers dropped some hawkish language, perceived as a signal that the Fed could pause.

The USD/JPY extended its losses past the prior’s day low of 135.07, collapsing down the 135 figure, as the US Federal Reserve (Fed) decided to raise rates by 25 bps, though it signaled that it would pause its cycle. At the time of writing, the USD/JPY is trading volatile at around the 134.80-135.40 area.

Summary of the Fed’s monetary policy statement

Federal Reserve officials voted unanimously to raise rates by 25 bps, as shown by its monetary policy statement. Policymakers dropped the “some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time” language and instead mentioned that “in determining the extent to which additional policy firming may be appropriate,” policymakers would study incoming data.

Fed officials said that tightened credit conditions would likely weigh on the economy and reiterate the soundness of the banking system. Furthermore, policymakers emphasized that the labor market remains robust, and inflation is elevated. Regarding the balance sheet reduction, it will continue as planned since May 2022.

After the Federal Reserve’s decision, US rate futures show traders are pricing in rate cuts in September, according to Reuters.

USD/JPY Market’s Reaction

The USD/JPY 1-hour chart portrays that the pair fell below its prior low of 135.07 and printed a new one at 134.83. From there, the USD/JPY pair bounced off, with USD/JPY buyers eyeing a test of the 20-hour SMA at 135.72. But firstly, the buyers must conquer 135.50.

USD/JPY Technical Levels