USD Gains Ahead of Fed Rate Decision as BoJ Hike Expectations Build

The Japanese Yen weakened at the start of a central bank-heavy week, as investors await key decisions from both the Federal Reserve and Bank of Japan. The US Dollar (USD) gained strength against the JPY on Monday, with USD/JPY climbing to around 156.40, up roughly 0.50% on the day.

The market consensus is that the Fed will raise borrowing costs by a quarter-point at its September 15-16 meeting, with a 90% probability indicated by the CME FedWatch Tool. Recent US inflation data has shown price pressures remaining above the central bank's 2% target, further supporting this view.

Analysts at ING also expect the BoJ to deliver a rate increase on Friday, predicting a 25-basis-point hike with little risk of a surprise hold. However, they warn that a 'hawkish Fed hike' could prompt a rebuilding of speculative USD/JPY long positions, potentially limiting further losses in the JPY.