USD/JPY flattens as market digests Fed minutes

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Investing.com - The dollar flattened against the yen as investors digested the minutes from the Federal Reserve's June policy meeting, which revealed the U.S. central bank could close its monthly bond-buying program in October.

In U.S. trading, USD/JPY was up 0.01% and trading at 101.59, up from a session low of 101.45 and off a high of 101.86.

The pair was expected to test support at 101.24, the low from June 30, and resistance at 102.27, last Thursday's high.

The greenback held onto gains after the Fed said it was on track to closing its dollar-weakening monthly bond-buying program this year, though concerns among monetary authorities over excessive risk-taking in the country's financial markets took the greenback off its highs.

The Fed is currently buying $35 billion in Treasury and mortgage debt a month to spur recovery, a monetary policy tool known as quantitative easing that aims to stimulate the economy by suppressing long-term interest rates.

The stimulus program aims to entice investors out of safe-haven asset classes like the U.S. dollar and into equities with the hope investing and hiring follow.

The Fed has gradually been trimming the amount of bonds it purchases by $10 billion a month, and by end of this year, the program should close if the Fed continues to taper on its current trajectory.

"While the current asset purchase program is not on a preset course, participants generally agreed that if the economy evolved as they anticipated, the program would likely be completed later this year," the minutes read.

"Some committee members had been asked by members of the public whether, if tapering in the pace of purchases continues as expected, the final reduction would come in a single $15 billion per month reduction or in a $10 billion reduction followed by a $5 billion reduction."

Expect that final cut to come in October if recovery continues at its current pace.

"Participants generally agreed that if incoming information continued to support its expectation of improvement in labor market conditions and a return of inflation toward its longer-run objective, it would be appropriate to complete asset purchases with a $15 billion reduction in the pace of purchases in order to avoid having the small, remaining level of purchases receive undue focus among investors," the minutes read.

"If the economy progresses about as the Committee expects, warranting reductions in the pace of purchases at each upcoming meeting, this final reduction would occur following the October meeting."

The Fed's words bolstered the dollar over the yen, though concerns among monetary authorities that excessive risk-taking may be occurring in the country financial markets took the greenback off earlier highs.

Corporate bond spreads have been falling as have volatility indicators such as the VIX, which could indicate that investors are taking on risks despite the possibility of facing losses for which they might not be fully prepared.

"Signs of increased risk-taking were viewed by some participants as an indication that market participants were not factoring in sufficient uncertainty about the path of the economy and monetary policy," the minutes read.

"They agreed that the Committee should continue to carefully monitor financial conditions and to emphasize in its communications the dependence of its policy decisions on the evolution of the economic outlook; it was also pointed out that, where appropriate, supervisory measures should be applied to address excessive risk-taking and associated financial imbalances."

Still, monetary policy will remain accommodative and will promote "favorable financial conditions required to support the economic expansion."

The yen, meanwhile, was down against the euro and down against the pound, with EUR/JPY up 0.23% at 138.59, and GBP/JPY trading up 0.14% at 174.25.

On Thursday, the U.S. is to release the weekly government report on initial jobless claims.

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