USD/JPY Faces Uncertainty Ahead of Rate Decisions

The USD/JPY pair has been carrying a bullish bias for the past five years, but recent developments have raised questions about its future direction. This week's rate decisions from Japan and the US are expected to provide some clarity on the matter. Scott Bessent previously warned that he knows what the Bank of Japan will do, which could be significant in determining the pair's trajectory.

The potential for a larger retracement in USD/JPY has been growing, with the recent surge in Japanese government bond rates providing motivation for the BoJ to act. This could lead to a whole host of new scenarios, including a cascading effect on other markets such as tech stocks. The fear appears to be somewhat contained, but if there are any surprises from the Japanese side, it could have significant consequences.

The trend in USD/JPY has been bullish over the past five-plus years, with several retracements along the way. However, over the past month-plus, there has been a clear change-of-pace, and the dual intervention in late-July has shifted matters. The Fed's expected rate hike this week could further push the divergence between the US and Japan.