USD/JPY at Multi-Decade Highs as Fed and BOJ Decisions Loom
The USD/JPY pair has reached fresh multi-decade highs after breaking above a symmetrical triangle, but its future direction depends on several key events this week. The Federal Reserve's interest rate decision on Wednesday is the most critical event for USD/JPY, with markets pricing around a one-in-three chance of a 25bp rate hike. However, since there will be no Summary of Economic Projections or dot plot, traders must rely on the policy statement and Kevin Warsh's press conference to gauge the FOMC's thinking.
Warsh has emphasized that he does not provide forward guidance, preferring markets to assess incoming data rather than central bank signalling. If he sticks to this approach, it may fuel volatility. If the Fed leaves rates unchanged, some initial US dollar selling would be expected due to market pricing a meaningful chance of a hike.
The Bank of Japan's policy decision less than 24 hours later could also have significant implications for USD/JPY. No change in the policy rate is anticipated, but traders will focus on updated forecasts and Governor Kazuo Ueda's press conference. The BOJ's preferred measure of underlying inflation, Core CPI, will be released earlier in the week, providing insight into domestic price pressures.