In the run-up to the FOMC (Federal Open Market Committee) meeting at the end of this month, Fed officials have been talking a lot. To summarize, the Fed will raise interest rates three to four times this year and will start shrinking its balance sheet. Even the dovish Fed president admitted the need to raise rates.
Fed Chairman Jerome Powell said in his testimony to Congress this week that the Fed needs to focus more on fighting inflation than on achieving full employment, and he is positive about raising rates. The Fed has turned into a complete hawk. The Fed has transformed itself into a full hawk and is giving strong forward guidance to make sure the financial markets know it.
However, the dollar/yen declined. The CPI (Consumer Price Index) for December released this week showed a further increase from the previous month, reaching 7.0% y/y, the highest level in almost 40 years, but the dollar is being sold in the opposite direction as the market believes that it is “within expectations” and that the Fed will not raise interest rates more than three times this year at least. It means that we need more strong material for the dollar/yen to rise.