Fed and BoJ Decisions Could Trigger USD/JPY's Biggest Move Yet

The Federal Reserve and Bank of Japan are set to make crucial decisions this week that could significantly impact the value of the US dollar against the Japanese yen.

The pair is currently trading at a 40-year high above $163, and even modest surprises from either central bank could trigger an outsized reaction. This asymmetry between positioning risk and event risk makes this week's decisions particularly important.

Futures markets assign only around a one-third probability of an immediate hike by the Fed, which is universally expected to leave the federal funds target range unchanged at 3.50-3.75% on Wednesday.

The voting breakdown and Chair Kevin Warsh's tone on inflation and labor resilience may provide more insight than the headline decision itself. Meanwhile, the Bank of Japan is also widely expected to hold its policy rate unchanged at 1.00%, but the quarterly Outlook Report and Governor Kazuo Ueda's assessment could signal an accelerated tightening timeline.