USD/JPY Hangs in Balance as Fed and BoJ Decisions Loom
The USD/JPY currency pair is trading around the pivotal 155.00 handle ahead of two important policy events: the Federal Reserve's rate decision and the Bank of Japan's interest rate hike.
Rising US bond yields and elevated oil prices have shifted the market's focus back towards inflation, making it more likely for the Fed to increase rates than a few weeks ago.
The yield differential between US rates and the rest of the world remains a significant headwind for major FX pairs like EUR/USD, CHF/USD, and JPY/USD. However, the prospect of a hawkish Bank of Japan has kept a lid on the dollar's gains against the yen.
A 25-basis-point rate increase is fully priced in by the Fed, but the market is focusing more on what policymakers signal about the path beyond today's decision. Higher US yields relative to Japan make the pair a long candidate from a trading point of view post-FOMC.