- USD/JPY meets with a fresh supply and reverses a part of the overnight recovery gains.
- The divergent Fed-BoJ policy expectations underpin the JPY and exert some pressure.
- Investors look to the critical Fed decision ahead of the key BoJ policy update on Friday.
The USD/JPY pair attracts fresh sellers during the Asian session on Wednesday and slides back below the 142.00 mark in the last hour, eroding a part of the overnight gains and stalling its recovery from the lowest level since July 2023 touched earlier this week. Meanwhile, the fundamental backdrop suggests that the path of least resistance for spot prices is to the downside, though traders might refrain from placing aggressive bets ahead of the key central bank event risks.
The Federal Reserve (Fed) is scheduled to announce its decision at the end of a two-day meeting later this Wednesday and is universally expected to kick start its policy easing cycle. The market attention will then shift to the Bank of Japan (BoJ) policy update on Friday, which will play a key role in influencing the Japanese Yen (JPY) and provide a fresh directional impetus to the USD/JPY pair. In the meantime, the cautious market mood, along with the divergent Fed-BoJ policy expectations, drives some haven flows towards the JPY and turns out to be a key factor exerting downward pressure on the USD/JPY pair.
The markets have been pricing in a greater chance of an oversized, 50 basis points (bps) interest rate cut by the Fed amid signs of easing inflationary pressures. This overshadows Tuesday's better-than-expected release of the US Retail Sales data and fails to assist the US Dollar (USD) to build on the overnight bounce from the 2024 low. In contrast, the recent hawkish signals from BoJ officials suggest that the Japanese central bank will hike rates again by the end of this year. This has been a key factor behind the JPY's recent relative outperformance and contributes to the offered tone surrounding the USD/JPY pair.
The JPY bulls, meanwhile, seem rather unaffected by Japan's August trade data, which showed a big miss for both exports and imports. According to the official data, Japan's exports rose for a ninth straight month, by 5.6% YoY rate in August, but at a much slower-than-expected pace. This was accompanied by a substantially smaller-than-expected growth of 2.3% in imports, albeit did little to dent the underlying bullish sentiment surrounding the JPY. This, in turn, validates the near-term negative outlook for the USD/JPY pair and supports prospects for an extension of the recent well-established downtrend.
Economic Indicator
Fed Interest Rate Decision
The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).
Read more.Next release: Wed Sep 18, 2024 18:00
Frequency: Irregular
Consensus: 5.25%
Previous: 5.5%
Source: Federal Reserve
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD holds gains above 1.1100, Fed rate decision in focus
EUR/USD is holding gains above 1.1100 in the European session on Wednesday. A broadly weak US Dollar, amid increased bets of an outsized Fed rate cut and a cautiously optimistic market mood, underpins the pair. All eyes remain on the Fed policy verdict.
GBP/USD extends rebound above 1.3200 after UK inflation data
The GBP/USD rebound gains traction above 1.3200 in European trading on Wednesday. The data from the UK showed that the annual core CPI rose 3.6% in August, up from a 3.3% increase in July, and supported the GBP. Focus shifts to Fed policy decisions.
Gold price struggles for firm intraday direction, stuck in a range ahead of Fed decision
Gold price struggles to gain any meaningful traction on Wednesday and consolidates in a range, around the $2,570 area heading into the European session. Traders now seem reluctant and opt to wait for the outcome of the highly-anticipated two-day Federal Open Market Committee (FOMC) meeting before positioning for the next leg of a directional move.
The time has come for the Fed to cut
Today, the Federal Reserve (Fed) will likely end the most aggressive monetary policy tightening cycle of its modern history. It is expected to start cutting its interest rates, update its economic projections and reveal its latest dot plot. While a rate cut is fully priced in, investors can’t agree on whether the Fed should cut by 25 or 50bp?
UK CPI set to grow at stable 2.2% in August ahead of BoE meeting
The United Kingdom Office for National Statistics will release August Consumer Price Index figures on Wednesday. Inflation, as measured by the CPI, is one of the main factors on which the Bank of England bases its monetary policy decision, meaning the data is considered a major mover of the Pound Sterling.
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.