USD/JPY Tipped for Further Gains Amid Hawkish Fed Hopes
The USD/JPY pair has been trading around the pivotal 155.00 handle ahead of the Federal Reserve's rate decision, which could have a significant impact on the market.
Rising US bond yields and elevated oil prices have shifted the focus back towards inflation and the prospect of a more hawkish Fed rate hike, causing investors to rebalance their portfolios and encouraging dip-buying in indices and gold.
The pair has been driven by the yield differential between US rates and the rest of the world, with a significant headwind for major FX pairs like EUR/USD, CHF/USD, and JPY/USD. However, the prospect of a hawkish Bank of Japan has kept a lid on the dollar's gains against the yen.
The outcome of the two policy events will determine the market's direction, with oil prices and Treasury yields being key factors to watch. A 25-basis-point rate increase is fully priced in for the Fed, but the focus lies in what policymakers signal about the path beyond today's decision. The Bank of Japan is expected to raise rates by 25 basis points on Friday, but guidance from Governor Ueda will be crucial in determining the yen's response.