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USD/JPY Rises on Hawkish Fed, Easing of Safe Haven Buying, Dovish Koroda

It was a relatively tame week in the Forex markets compared to the previous week’s volatility. Last week, the U.S. Dollar firmed against a basket of major currencies, primarily helped by a sell-off in the Euro. The dollar was also helped by a weaker Japanese Yen as the need for safe haven buying dissipated.

U.S. Dollar

The week started with the U.S. reporting weaker-than-expected retail sales data. U.S. retail sales barely rose in September as a rebound in motor vehicle purchases was offset by the biggest drop in spending at restaurants and bars in nearly two years.

For the week, December U.S. Dollar Index futures settled at 95.443, down 0.195 or -0.20%.

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The Commerce Department said on Monday retail sales edged up 0.1 percent last month after a similar gain in August. Economists had forecast retail sales increasing 0.6 percent in September. Excluding automobiles, gasoline, building materials and food services, core retail sales jumped 0.5 percent.

The minutes from the U.S. Federal Reserve’s September meeting showed that Fed policymakers are largely united on the need to raise borrowing costs further. The minutes showed officials believe the central bank should continue to increase interest rates to ensure a stable economy.

A summary of the Federal Open Market Committee’s September session revealed both confidence in the rate of economic growth as well as some concern over the impact tariffs might have on GDP.

“With regard to the outlook for monetary policy beyond this meeting, participants generally anticipated that further gradual increases in the target range for the federal funds rate would most likely be consistent with a sustained economic expansion, strong labor market conditions, and inflation near 2 percent over the medium term,” the minutes read.

Japanese Yen

As easing of tensions in the U.S. stock market and higher U.S. Treasury yields helped the Dollar/Yen close higher last week. The previous week’s stock market volatility led to the dumping of risky assets and the buying of the safe haven Japanese Yen. This week, stock market volatility eased somewhat, allowing Treasury yields to challenge multi-year highs once again. This encouraged investors to take profits in Japanese Yen positions they had bought the previous week.

For the week, the USD/JPY settled at 112.534, up 0.303 or +0.27%.

The hawkish Fed minutes underpinned Treasury yields, making the U.S. Dollar a more attractive investment. Stocks were volatile, however, the Dow managed to close higher for the week.

In other news, Bank of Japan Governor Haruhiko Kuroda on Friday warned of the need to be mindful of risks to the country’s moderate economic expansion, such as the rising tide of protectionism and volatile financial markets.

“We need to vigilant to recent protectionist moves and financial market developments. Still the economy is likely to continue expanding moderately,” Kuroda said in a speech at an annual meeting of credit associations.

Kuroda also said that while he saw no excesses building up in Japan’s financial system, regional financial institutions were seeing profits fall due to a dwindling population and prolonged low interest rates.

Earlier in the week, the Japanese Yen fell after Kuroda offered an upbeat view on the Japanese economy, but continued to back a low rate strategy to attain its inflation goal.

“Japan’s economy is expected to continue expanding moderately,” Kuroda said after meeting with regional branch managers.

This article was originally posted on FX Empire

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