THE TAKEAWAY: Federal Reserve policymakers do not alter language on “forward guidance,” saying enough had already been done > Believe US Treasuries were appropriately priced by the end of July > Fed on pace to taper QE3 in Septemer (pending) > USDJPY BULLISH

Federal Reserve policymakers were hopeful yet still pessimistic on the state of the US economy at the July FOMC meeting, the Minutes revealed today. Such an interpretation of recent data led to an aggregate decision to keep the Fed’s policies unchanged in July, with neither a tapering of QE3 nor an introduction of new “forward guidance” policies.

Indeed, the lack of further clarity on the Fed’s ‘low rates’ timeline has proven to be the most significant takeaway from the July Minutes, insofar as it is clear that the recent uptick in US Treasuries yields is what was anticipated.

Therefore any retaliatory measures (extending the promise to keep interest rates low from late-2015 to late-2016, for example) are unlikely barring a significant downshift in US economic data. Although the July US labor market report was ultimately disappointing, it showed that even in a down month, jobs growth has reached the point at which the Unemployment Rate is no longer rising.

In sum, the July Minutes give only a minor key into what policy makers might do in September. At this point in time, it’s clear the data of paramount importance will be the August Nonfarm Payrolls report (due on September 6). If the report disappoints – less than +175K on the headline figure – then the “angst” reportedly held by Fed policymakers will only grow, making a ‘Septaper’ less likely.

Read more: British Pound Finds New Role as Haven During Emerging Market Turmoil

USDJPY 1-minute Chart: August 21, 2013

USDJPY_Hits_Fresh_High_as_July_FOMC_Minutes_Reinforce_Septaper_body_Picture_1.png, USD/JPY Hits Fresh High as July FOMC Minutes Reinforce 'Septaper'

Charts Created using Marketscopeprepared by Christopher Vecchio

Following the data, the USDJPY initially jumped as it appears that, at present time, a ‘Septaper’ is on track. The pair rallied from ¥97.57 ahead of the release to as high as 97.98 afterwards, before to as low as 97.65. At the time this report was written, the USDJPY traded at 97.76.

Elsewhere, however, the US Dollar was unchanged versus the Australian Dollar, the British Pound, and the Euro in the hour after the Minutes’ release, perhaps indicating some lingering fear that the August NFP report might not be strong enough to warrant a slowdown in QE3.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form