USD/JPY drops on the dovish Fed 25 bp rate hike

• USD/JPY is dropping like a stone on a dovish Fed rate hike.
• Bears are in the market as the US yields US Dollar sinks during Fed Powell´s presser. 

USD/JPY is under pressure as the Federal Reserve drives markets to reprice interest rate expectations due to a dovish rate hike of just 25 basis points and tweaks to the Federal Open Market committee´s statement and forward guidance.

Ahead of the decision, the money markets were pricing in a year-end target rate of 4.36%. This has dropped in volatile reactions to the statement to 4.26%. At the time of writing, US 2-year Treasury yields are down to 4.77%, dropping from 4.259% on the day to print a low of 3.958%. USD/JPY is plummeting as a result to test the 131.20s and it has fallen from a high of 133.00. 

Fed event key notes, so far

• The median forecast shows rates at 5.1% end-2023, 4.3% end-2024.
• 'Some additional policy firming may be appropriate.'
• FOMC deletes reference to ongoing increases.
• US banks are sound, resilient but events to weigh on growth.
• Likely to see tighter credit conditions that weigh on economic activity, hiring and inflation.

Meanwhile, Federal Reserve chairman Jerome Powell is speaking to the press in an event that started at 18.30GMT.

Fed hikes policy rate by 25 bps as expected, focus shifts to Powell – LIVE

Powell speech: Isolated banking problems can threaten banking system if left unaddressed

Powell speech: Recent banking events will result in tighter credit conditions

Powell speech: Before banking stress, thought we would have to raise terminal rate

Powell speech: Tightening in credit conditions may mean monetary tightening has less work to do