USD/JPY: Pre-FOMC Consolidation as Investors Await Fed and BOJ Decisions
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USD/JPY
Dollar-yen has entered its pre-FOMC/BOJ consolidation range. Heading into the FOMC decision the data has been holding up. The US economy has still yet to feel the complete impact of the Fed’s rate hiking campaign as the flash PMIs showed that business activity is slowing and as consumer confidence surged to a two-year high. Wall Street wants to believe the Fed will be one and done, but the data might not allow that to happen. They are likely to signal an extended pause, but hold onto a tightening bias, which could help push dollar-yen higher initially. Will USD/JPY rise towards prior intervention levels around the 145 is the big question at hand. A short-term advance in the dollar seems possible going into and that could extend post Fed if policymakers focus on the resilience of the US economy.
The bigger driver for USD/JPY might stem from the BOJ decision. There was a chance that we could get a Yield Curve Control (YCC) tweak, but that seems less likely. A key Tokyo CPI report will occur hours before the BOJ decision, but probably won’t sway the bank unless it comes scorching hot. The BOJ should deliver a tweak, but Ueda’s comments from a conference in India last week suggest they will stay the course with their ultra-loose monetary stance. The BOJ might eventually need to trigger an abrupt change to policy given the trajectory of the US economy and how high inflation has turned.
To the downside, a break of the 140 level could see momentum selling target the 137.50 region. The 142.50 level should provide initial resistance, with the 145 level likely to trigger calls of future currency intervention.
