Dollar extends yen gains in Asia as Fed, BoJ diverge

The US Federal Reserve has kept its interest rate unchanged but announced that it would start unwinding its United States dollars 4.5 trillion balance sheet from October, a further step to end the loose monetary policy.

The Federal Reserve has been praised as careful and cautious by industry experts after it left the Fed Funds Rate unchanged at 1.00-1.25 per cent, and announced it would begin to reverse its crisis-era stimulus programme from next month.

"Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term", the Fed said.

Given how concerned some officials had been about inflation, there was clearly some money looking for a more dovish Fed than we saw. The 10-year U.S. Treasuries yield US10YT=RR rose to 2.278 percent, briefly hitting a six-week high of 2.289 percent.

The central bank has raised that rate three times since December as the economy has gradually improved.

Stocks are inching mostly lower on Wall Street after the Federal Reserve said it would start reducing its huge bond portfolio next month and was still on track to raise interest rates later this year.

U.S. stocks are poised for a mixed start after another higher finish on Tuesday as all eyes will be on Janet Yellen and the Fed press conference at 2.30pm EST.

Many analysts and economists have been stirring up the notion that if there are any signs of an uptick in inflation between now and December, the Fed will follow through with a rate increase.

The Federal Reserve has been dogged in recent years by inflation below its 2 percent target, but Fed Chair Janet Yellen says she still thinks this trend appears to be temporary. The current rate of between 1 percent and 1.25 percent is a level most Fed officials regard as providing modest encouragement for increased borrowing and risk-taking.

"Job gains have remained solid in recent months, and the unemployment rate has stayed low", the Fed said in a statement.




Yellen said policymakers would react accordingly to any negative impacts on the economy, adding that persistently low inflation would likely come to an end.

US benchmark West Texas Intermediate (WTI) crude futures CLc1 hit a four-month high of $50.79 per barrel and last traded at $50.71, flat from the USA close on Wednesday.

She said the Fed would adjust its policymaking if it thought the causes of low inflation had become permanent.

The Canadian dollar is stronger by 0.3% at 1.2256 per dollar. However, it will take years for the Fed to reach the level it sees as appropriate for the size of its balance sheet.

YELLEN: The decisions that we've made this year about rates and today about our balance sheet are ones we have taken because we feel the USA economy is performing well.

Editor's Remarks: The Fed holds $4.2trn of US Treasury bonds and mortgage-backed securities after nine years of quantitative easing (QE).

In some ways, it comes back to the long-term rate projection.

She also said if prices rose too quickly the bank would be able to lift rates quicker.

The FOMC has two more meetings scheduled before the end of the year.

While the decision to shrink the Fed's balance sheet is much expected, when and how the Fed will manipulate its target for short-term interest rates is less clear.

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