The USD/JPY remained above the 149.00 level during Tuesday’s early Asian trading hours, registering a daily change of 0.04%. This stability comes amid speculation that the Bank of Japan (BoJ) may make changes to its Yield Curve Control (YCC) policy, as suggested by a Nikkei report, which lent support to the Japanese Yen against the US Dollar.
On Monday, the USD/JPY fell sharply after the Asian close, influenced by Nikkei headlines ahead of the BoJ decision. These reports hinted at increased yield flexibility, which strengthened the Yen and caused the USD/JPY to fall from 149.75 to lows of 148.81; it later stabilized near 149.05 by the New York close.
Market participants are eagerly awaiting Governor Kazuo Ueda’s comments on a flexible yield cap for the 10-year Japanese government bond (JGB), in addition to the BoJ’s unlimited fixed income purchases. Speculation is that the BoJ may maintain a 1% cap but allow +/-0.5pp fluctuations, fulfilling some of the conditions set out in the Nikkei article and renewing focus on the outcome.
On Monday, Federal Reserve (Fed) Chairman Jerome Powell confirmed a stable interest rate for November, with potential rate hikes contingent on high economic growth and labor shortage conditions. Hawkish comments from Fed officials may limit further dollar depreciation and support the USD/JPY.
The upcoming BoJ policy meeting, press conference and Fed rate decision are key events that could trigger market volatility.
In addition, economic data such as the unemployment rate, retail sales, industrial production figures, and housing starts have been highlighted ahead of the decision. Despite low expectations from sell-side analysts, today’s options expirations could influence spot movement. A breach of the 20-day EMA exposes the 50-day EMA as the next support.
