USD/JPY Breakout Faces Key Tests Amid Fed, BOJ Decisions

The US dollar against the Japanese yen (USD/JPY) had a bullish breakout last week, reaching fresh multi-decade highs. The question now is whether higher energy prices and widening policy divergence can propel USD/JPY through 164.

Next week's key events include the Federal Reserve's interest rate decision on Wednesday, which is expected to have around a one-in-three chance of a 25bp rate hike. However, without a Summary of Economic Projections or dot plot, only the policy statement and Kevin Warsh's press conference will provide insight into the FOMC's thinking.

The Bank of Japan's (BOJ) policy decision on Thursday is also crucial for USD/JPY direction, as it will update forecasts and Governor Kazuo Ueda will hold a press conference. The BOJ has maintained that risks to inflation are skewed to the upside, citing a weaker yen and higher import prices.

In addition to central banks, other key events include Friday's Tokyo CPI report in Japan and the advance estimate of second-quarter GDP in the US. Personal income, spending, and core PCE deflator for June will also be released on Thursday, which may provide insight into consumer spending levels.