Japenese Yen falls as Fed minutes revive tightening bets

The Japanese Yen depreciated by over 0.26% within familiar levels, as the Fed’s last meeting minutes showed that the majority of participants indicated that “some policy firming would likely be warranted” and agreed to shorten the length of the monetary policy statement. The USD/JPY 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 behaviour, 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 upported to leave rates unchanged and saw a stable labour 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 other participants commented that they saw the current policy stance as slightly restrictive.

In the meantime, money markets had 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, the USD/JPY extended its gains, 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.