Hidden risk aversion, USD/JPY rises lower

During the New York session on Wednesday (September 21), USD/JPY remained within a narrow range near the bottom of the previous range before the Federal Reserve interest rate resolution of 76.30. A strong rebound after interest rate resolution hit an intraday high of 76.73, but then fell back to 76.40, because the Fed’s interest rate After the announcement of the resolution, the foreign exchange market is likely to be dominated by market sentiment once again. Moreover, the Fed's forward look on the US economy is not optimistic and the risk aversion is looming.

USD/JPY opened at 76.31 in New York session. In early trading hours, the exchange rate range fluctuates. At midday, after the exchange rate rose steadily, the intra-day high was 76.73, eventually closing near the 76.66 level.

The US Federal Open Market Committee (FOMC) announced that the current federal funds rate will remain unchanged in the 0-0.25% range, reaffirming that economic conditions may ensure that an unusually low interest rate remains at least until mid-2013.

The Fed said that it will purchase US$400 billion six- to 30-year bonds before the end of June 2012 to sell three-year or more short-term bonds of the same size, and said that it will extend the average period of the securities held by it, and will Mortgage-backed bonds expired principal reinvested in institutions MBS.

Analysts said that before the market expected "warping operation" as scheduled, the introduction of the third round of quantitative easing (QE3) may be substantially reduced. In the short-term, the fundamentals of the bearish dollar have been exhausted, and the US dollar index has risen sharply.

After the statement, the USD/JPY rose rapidly from 76.30 to the 76.73 line, but after the New York stock market closed, the exchange rate fell back to 76.40. The stock market crash may have triggered market risk aversion. The three major US stock indexes have fallen by more than 2%, of which the S&P 500 Index closed down nearly 3% and the Dow Jones Industrial Average plunged 286 points.

The International Monetary Fund (IMF) yesterday lowered its forecast for US economic growth in 2011 from a 2.5% increase in June to a 1.5% increase. The government’s August 26 report showed that the US economy expanded by 1% year-on-year in the second quarter and was initially expected to grow by 1.3%. The 66 economists surveyed predicted that the third cycle of the United States economy may increase by 1.8%.

Former Fed economist Roberto Perli, currently director of the International Strategy & Investment Group, pointed out: "It is clear that the economy has not been moving in a very exciting direction, but it seems that a rebound seems to have occurred quietly."

Analysts said that the U.S. economic growth is not enough to reduce the unemployment rate. Economists surveyed said that the U.S. unemployment rate will not fall below 9.1% for the rest of 2011 and may fall back to 8.7% by the fourth quarter of 2012.

The Fed’s statement also mentioned that although the recovery of the United States will gradually turn for the next few quarters, the unemployment rate will only slowly decline. The economic uncertainty also warmed the market's risk aversion.

In addition, data released by the Ministry of Finance of Japan (Japan Ministry of Finance) showed that Japan’s commodity exports rose at an annual rate of 2.8% in August, but the rate of increase was still far below the 8.0% median growth expected by economists interviewed by the media. The monthly rate of exports rose by 0.3% in the August quarter.

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