USDJPY TECHS: Bullish Trend Sequence Extends

• US rates have pared a large part of what was already an initially limited dovish reaction to the first look at the suite of FOMC communications.
• SOFR futures currently see largest post-1400ET rallies in H6 and M6 contracts, just +0.025, whilst the Z6 is back to just +0.01 after reversing 3.5 ticks.
• It keeps the terminal yield of 3.19% (Z6 and H7) close to yesterday’s highest close since July.  
• Nearer-term, Fed Funds futures still pointing to only 5-6bp of cuts priced for January and a next cut with June (cumulative 31.5bp) under a new Fed Chair.
• This first look includes the decision to unsurprisingly cut 25bp, three dissents (two hawkish, one dovish), the SEP which includes an unchanged median dot plot from September and the decision to buy $40B of monthly bills for the high end of estimates for reserve management purchases and earlier than our base case of starting in 1H26. Fed Chair Powell is next up at 1430ET. 

• The dollar index is holding on to the bulk of the post-Fed declines as markets digest the moderately dovish development surrounding the commencement of reserve management bill purchases on December 12.  This comes after reserves have declined to ‘ample levels’.
• The DXY falls to a fresh session low, extending the pressure seen across the majority of Wednesday trade. Greenback losses are reflective of the step lower in front-end US yields, with the 2-year now down 5bps on the session.
• USDJPY had a notable bump down to 156.11 from around 156.50 pre-announcement, although the pair has recovered over half the move since.
• Dollar declines are being better consolidated against the likes of EUR, GBP, AUD and NZD which stand towards the session’s best levels.
• AUDUSD stands out as we print a fresh recovery high and maintain the impressive rally from the November lows, while in similar vein, NZDUSD’s near 4% recovery has just met its first medium-term target at the 0.5800 pivot.
• The Swedish krona and Swiss Franc continue to outperform across G10. 

The updated economic projections are also largely in line with expectations, and mostly unchanged, reflecting the paucity of official data since the last edition in September.

• The unemployment rate is still seen as 4.5% in Q4 2025, suggesting that there is a fairly low bar to exceeding that forecast when we get the end-year data (September was 4.44%) - some had seen this nudged up to 4.6% to suggest a continued upward trajectory. Outer years are basically unchanged as well.
• The inflation profile was downgraded by 0.1pp for 2025 (core PCE seen at 3.0%, headline 2.9% for 2025), with the 2026 drop in PCE to 2.4% from 2.6% prior being somewhat notable.
• The 2025 real GDP upgrade was a little smaller than might have been expected given GDP readings since the last meeting - at 1.7% vs 1.6% prior. That may reflect some participants' downside risk assessment of the federal government shutdown fallout; the 2026 increase to 2.3% from 1.8% prior may reflect the expected bounceback from the reopening.