By: Hillel Fuld
The USD hovered within clear sight of a a decade and a half low against the Japanese currency on Wednesday after the Federal Reserve announced their intentions to boost a flagging economy by reinvesting money from maturing mortgage bonds into government debt.
The announcement did not come as a complete shock to the market but it did mark a policy change for the Fed, which only a few months ago considered how to begin winding down some of its monetary stimulus programs.
The Fed's plan to maintain asset purchases and shift to Treasuries does suggest it may boost the size of its already tremendous $2.3 trillion balance sheet if the economy loses momentum, market players said. The dollar decreased 0.1 percent from late U.S. trade on Tuesday to 85.37 yen edging back toward an eight-month low of 85.02 yen hit on trading platform EBS last week.
A drop under November's low of 84.82 yen would take the dollar to a 15-year low. "The dollar could fall below 85.00 yen at any moment," says Shuichi Kanehira, head of FX spot trading at Mizuho Corporate Bank. Market players cited talk of stop-loss offers in the dollar near 85.00 yen, 84.80 yen and 84.75 yen and large option barriers at 84.75 yen and 84.50 yen, suggesting that the dollar's drop against the yen could gain momentum if such levels are reached.
"Given the contrast with the BOJ's decision yesterday, we seem to have entered a situation where the yen is likely to rise," said Akira Hoshino, chief manager for the Bank of Tokyo-Mitsubishi UFJ's foreign exchange trading department.
The U.S. central bank acknowledged financial growth had slowed in recent months and reiterated its plan to hold benchmark interest rates at record lows for an extended time. "(The Fed's) decision should be seen primarily as a signal to financial markets, consumers and businesses that the FOMC is ready to start a second round of quantitative easing if the Committee sees a double dip around the corner," Rabobank analyst Philip Marey said in a research note, referring to the U.S. central bank's policy-setting Federal Open Market Committee.