USDJPY could pull a fast one on us, as the pair looks like it’s running out of steam ahead of the Bank of Japan meeting.
USDJPY: Daily Chart
The USDJPY pair rose to a high of 148.50 following the FOMC decision, but has since fallen back below support.
Investors will be privy to Japanese inflation data ahead of the Friday session, followed by the Bank of Japan’s interest rate decision and commentary. On inflation, markets are waiting to see if Japan’s recent jump to 3.3% in prices will persist.
A majority of economists polled by Reuters believe that the Bank of Japan will end its negative interest rate policy next year. None of the economists surveyed saw any possibility of the BOJ rolling back its easy policy stance at this week’s meeting, with almost 80% of them saying the central bank will drop the 10-year yield control scheme by the end of 2024.
Bank of Japan Governor Kazuo Ueda stated to interviewers earlier this month that the central bank may have enough data by the end of the year to determine whether to end negative interest rates. This has put traders on edge, as they await a potential counter-trend against the US dollar.
Of the 25 economists surveyed, 13 (52%) expect the Bank of Japan (BOJ) to end its negative interest rate policy sometime in 2024. This is an increase from 41% in an August poll.
The USDJPY price action shows that the pair rallied after the Federal Open Market Committee (FOMC) rate decision. The Fed was expected to keep interest rates unchanged at their current target range of 5.25% to 5.5%. However, the central bank’s most recent projections indicate that a further quarter-point rate increase is likely in 2023. This news was seen as hawkish by the market, which led to a rally in the USDJPY.
According to The Street, the possibility of a final rate hike this year cannot be ruled out, as the economy continues to defy recession predictions and the job market remains resilient. Stronger-than-expected projections will not completely eliminate the chances of a final rate increase in November, based in part on comments made by Chairman Jerome Powell late last month at the Fed’s central bank summit in Jackson Hole, Wyoming.