US Dollar Analysis: USD/JPY Dips Ahead of BOJ, Fed

USD/JPY Key Points

Reports suggest the BOJ will consider further relaxing its Yield Curve Control (YCC) program at its meeting tonight.
The Fed is unlikely to tweak interest rates and will likely stick to a “data dependent” approach to monetary policy.
USD/JPY is showing signs of rolling over, but remains in a longer-term uptrend.

USD/JPY Fundamental Analysis

It’s been a quiet, cautiously optimistic start to the trading week for risk appetite, but economic data is poised to pick up in earnest over the next 24-48 hours. In addition to the usual end-of-month rebalancing flows, traders are also on tenterhooks ahead of the Bank of Japan’s monetary policy meeting tonight and the Federal Reserve’s equivalent gathering on Wednesday.

Looking first to the BOJ, a late-breaking report from Nikkei suggested that the central bank was considering adjusting its Yield Curve Control (YCC) program again to allow 10-year government bond yields to rise above 1% in an extension of its move this summer. While not strictly a “rate hike” per se, such a move would be akin to policy tightening and could boost the yen further.

Beyond any direct changes to monetary policy, traders will also be keen for BOJ policymakers’ economic projections, particularly inflation, which is on track to eclipse the central bank’s 2% target for the second straight year.

On Wednesday, the Federal Reserve’s FOMC will announce its own interest rate “decision,” though hardly anyone expects it to be a “live” meeting with actual changes to monetary policy. Instead, traders will key in on any adjustments to the FOMC’s monetary policy statement and Fed Chairman Jerome Powell’s press conference.

With economic data continuing to show strong growth and inflation moderating, the central bank is currently tracking toward achieve its dual mandate. At the same time, the market-driven rise in longer-term bond yields has some of the same effects as an outright change in monetary policy, potentially allowing the Fed to sit on its hands for longer than it otherwise could have.

Expect Mr. Powell to stick to the well-established “data dependent” script, leaving the door open for another interest rate increase if necessary while stopping while short of pre-committing to any moves in either direction.

US Dollar Technical Analysis – USD/JPY Daily Chart

Source: TradingView, StoneX

Ahead of this week’s dueling central bank meetings, USD/JPY is showing signs of rolling over. After briefly making a run above 150.00 last week, rates have reversed back toward 149.00 as we go to press, leaving the pair (just) in negative territory over the course of month so far.

Much will hinge on the fundamental outlooks of the Bank of Japan and Federal Reserve, but from a purely technical perspective, the pair remains within a longer-term uptrend, though rates are on track to close below their 21-day EMA for the first time since late July. A deeper dip may take rates down toward the 50-day EMA near 148.00, whereas the key level to watch on the topside will be around 150.00, where traders start to worry about the potential for intervention from the BOJ once again.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter: @MWellerFX

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.