USD/JPY Teeters on 40-Year Low as FOMC Decision Looms

The USD/JPY pair is trading at 163.6710, down 0.10% from the previous session and within 32 pips of the 40-year low set last week at 163.99. This level was reached on Friday, and since then the pair has been consolidating between 163.55 and 163.90.

The yen has weakened significantly over the past month and year, with a depreciation of 0.68% in the past month and 9.68% in the last twelve months. The six-month arc is even starker, with the pair troughing at 152.46 on January 27 and printing 162.83 on July 1 as a 40-year low.

The Federal Open Market Committee (FOMC) is set to announce its decision today at 2:00 p.m. ET, which will likely have a significant impact on the pair. The market prices a roughly 33% chance of a quarter-point increase in interest rates, which could widen the differential between US and Japanese policy rates and push the USD/JPY through 164.

However, analysts are warning that a break above 164 following a hawkish Fed outcome could force Tokyo's hand and trigger a sharp reversal. This is because Japan's Ministry of Finance has intervened at similar levels before, and analysts have explicitly flagged 164 as a potential intervention trigger.