US Dollar to Japanese Yen Exchange Rate Plummets after Dovish Fed Rate Hike

The US Dollar to Japanese Yen exchange rate plunged on Wednesday evening as investors showed disappointment in the Federal Reserve’s relatively dovish US interest rate hike and the Bank of Japan (BoJ) left policy frozen.

USD/JPY began the week trending at the level of 114.75 and trended flatly until Wednesday evening, when it dropped over a yen in value to a new two-week-low of 113.03. The pair trended at around 113.50 at the time of writing.

<h3>US Dollar (USD) Slumps as Fed is Less Bullish than Hoped</h3>

US Dollar traders were feeling pretty optimistic this week.

With bets of a March <a title="Federal Reserve" target="_blank" href="http://www.federalreserve.gov/">Federal Reserve</a> interest rate hike soaring to over 90% in the last few weeks on a slew of solid US ecostats, markets had been hoping the Fed would hint that as many as four or more rate hikes would be possible throughout the year.

However, as Wednesday’s (already priced in) US interest rate hike came and went, the Fed merely took on the same tone it has delivered in recent months.

Since December 2016, the Fed has stated it hopes to hike US rates two or three times throughout 2017. Following this week’s rate hike, the Fed stated it hoped to hike rates only twice more this year, disappointing investors hoping for a more bullish rate of four 2017 rate hikes.

<h3>Japanese Yen (JPY) Steady on Frozen BoJ Policy</h3>

The Japanese Yen, as one of the US Dollar’s biggest trade partners, benefitted significantly from this disappointment in the Fed’s tone. The Yen saw solid gains against majors following the Fed decision.

Thursday’s Asian session saw the <a title="BOJ" target="_blank" href="https://www.boj.or.jp/en/">Bank of Japan (BoJ)</a> hold its March policy decision, followed by comments from BoJ Governor Haruhiko Kuroda.
As was expected by most analysts and investors, the BoJ left monetary policy frozen and policymakers (including Kuroda) took the same status quo tone as always despite rising US interest rates.

The Yen was weakened slightly by the decision, but the US Dollar’s losses were more influential to USD/JPY overall.

<h3>USD/JPY Forecast: Michigan Consumer Sentiment Due Friday</h3>

The US Dollar to Japanese Yen exchange rate is likely to end the week below its opening levels due to a lack of significant relevant ecostats due before the end of the week.

However, a significant shift in the University of Michigan’s US consumer confidence print on Friday could influence the US Dollar.

Strong US consumer confidence in March will increase hopes that the US economy will continue to see solid activity in March onwards, which will increase hopes for another Fed rate hike from May onwards.

Friday will also see the publication of US industrial production and manufacturing production figures from February, but these are unlikely to influence USD demand heavily as March’s Fed rate hike has already come and gone.

As for the Japanese Yen, it is unlikely to see a notable shift in demand unless the attitude towards USD changes. However, next Tuesday’s Japanese trade balance figures from February could inspire JPY movement if it comes in above or below expectations.