USD/JPY Weakens for a Second Day as Traders Prepare for the Fed and BoJ
USD/JPY fell less than 0.1% on Tuesday and held around 158.90, trading narrowly without a clear direction. This marked the second day of correction from last week's year-to-date peak of around 159.75, with the movement indicating the market remains reluctant to breach the psychological 160.00 level ahead of a series of key central bank decisions.
The initial focus is on the Federal Reserve, which is almost certain to keep interest rates unchanged at 3.75% on Wednesday. With the likelihood of a rate change considered almost zero, market attention shifts to the Summary of Economic Projections (SEP) and Fed Chairman Jerome Powell's press conference. With the market now pricing in only about 22 basis points of cuts throughout the year, even a small change in the tone of the communication or the dot plot has the potential to have a significant impact on the dollar and the direction of USD/JPY.
Next, it's the Bank of Japan's turn on Thursday, with the policy rate expected to remain at 0.75%. The BoJ is likely to highlight high energy prices and the issue of the Strait of Hormuz closure as downside risks to Japanese growth, which could narrow the scope for near-term tightening. At the same time, Prime Minister Sanae Takaichi's pro-stimulus stance adds to policy uncertainty, even though core inflation remains above target and wage growth remains strong.
For the market, this combination leaves USD/JPY seemingly "locked" in the 159 area: the dollar awaits the Fed's signal on the direction of easing, while the yen is sensitive to energy risks and how cautiously the BoJ assesses the growth outlook. The 160 level remains a psychological benchmark that could increase volatility if ultimately tested.
What market participants need to monitor:
The Fed's dot plot/SEP and Powell's tone (whether it is slightly more dovish than expected).
The BoJ's stance on the impact of energy and risks to Japanese growth.
Oil movements and Strait of Hormuz headlines, as they could affect Japanese import inflation and yen sentiment.(CP)
Source: Newsmaker.id
