USD/JPY Hits 14-Month Low Ahead of Fed & BoJ Decision
USD/JPY Analysis
The Bank of Japan is likely to stand pat on Friday, but markets will be closely watching for any more hints around the next moves. Going in the opposite direction from its major peers, the BoJ has raised rates twice this year, moving away from years of ultra-loose setting. The most recent hike sparked volatility and a notable JPY rebound, while officials have pointed to more tightening within the year. Wages have increased, core inflation remains well above 2% and GDP grew by a robust 2.9% in Q2.
The Fed on the other hand, gears up for its first rate cut in four years on Wednesday, reversing course from its aggressive tightening cycle that started in March 2022. However the size of the move is up in the air, with CME's FedWatch Tool now assigning the highest probability to a larger 0.5% move and a total of 125 bps of cuts this year. Markets will also be closely watching the updated projection and the press conference for more clarity on the path ahead.
The hawkish repricing around the Fed pivot and the shifting monetary policy dynamics sent USD/JPY to thirteen-month low ahead of this week's decisions and expose it to 137.22. On the other hand, aggressive Fed market pricing and recession fears appear stretched and the interest rate differential is vast. As a result a USD/JPY rebound would not be surprising. However, a return above the EMA200 (black line) that would pause the bearish bias does not looks easy under current conditions.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. With extensive experience in market analysis and a strong foundation in international relations, he brings a unique perspective to financial markets. Nikos emphasizes not only technical analysis but also on fundamentals and the growing influence of geopolitics on financial trends.
As a Senior Financial Editorial Writer, he delivers comprehensive and forward-looking insights across a wide range of asset classes, including equities, commodities, and currencies. His work explores how macroeconomic events, political developments, and global policies impact market dynamics, providing readers with a deeper understanding of both short-term movements and long-term trends.
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