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USDJPY Climbs on Fed Bernanke’s Speech

By Renee Mu
20 March 2013 19:56 GMT

THE TAKEAWAY: Fed Chairman Bernanke hold press conference after FOMC rate decision > labor market has been improved in past 4-5 months > USDJPY Bullish

The following are the key comments from Fed’s Chairman Bernanke:

Fed has studied on the cost and benefit of the quantitative easing. The cost including risks of financial stability is manageable and under monitor by Fed.

The labor market is picking up and the economy is improving. Yet it is hard to give numerical threshold for asset purchasing due to complexity. Fed looks at the outlook of the economy and the future growth rate, and looks for sustained improvements in economic indicators and momentum signs.

Fed will use models and indicators to adjust QE. Improvements have been seen in the labor market over last 4-5 months. Fed needs to see the improvement to sustain for a couple of months in case that it is a temporary change and will weaken again.

Cyprus is in difficult situation with issues in banking system and a lot uncertainty and faces political stress. Risks from Cyprus is not major to US economy right now.

The term limit is not a major issue and he does not have a strong view on it.

Bernanke has ‘great concerns’ for unemployed people as their loss of skills will hurt the whole economy.

FOMC has not been able to reach an agreement on what guidance to give.

Too-big-to-fail is still a significant problem and not solved. Capital is an important element in too-big-to-fail. Large banks should hold more capitals than small banks so their costs are increased and therefore the failure will be limited.

Fed isn't targeting at asset prices; Fed’s success is tied to inflation and unemployment.

Bernanke does not see anything in stock market out of lines according to history. Stock prices are in nominal term which are not adjusted for inflation.

Fed does not have enough firepower to get economy back to full employment more quickly.

USDJPY 1-minute Chart: March 20, 2013

USDJPY_Climbs_on_Fed_Bernankes_Speech_body_Picture_1.png, USDJPY Climbs on Fed Bernanke's Speech

Chart created using Marketscope 2.0– Prepared by Renee Mu

As can be seen from the one-minute chart above, the US dollar climbed higher against the Japanese Yen while Bernanke was giving the speech, rallying about 20 bps to 96.10 yen. At the time of this report written, the USDJPY was trading at 96.06 yen.

--- Written by Renee Mu DailyFX Research

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20 March 2013 19:56 GMT