USD/JPY hovers near yearly highs as investors await Fed and BoJ decisions

• USD/JPY remains near yearly highs as investors turn cautious ahead of the US Federal Reserve and Bank of Japan (BoJ) policy decisions.
• The Fed is expected to keep rates unchanged, with a focus on economic forecasts and the Federal Funds Rate (FFR) projections.
• The BoJ is not expected to raise rates but may provide insights into potential changes to its Yield Curve Control (YCC) and negative interest rate policies.

The USD/JPY remains subdued as Tuesday’s session begins, ahead of the US Federal Reserve’s decision on Wednesday, in which the US central bank is expected to keep rates unchanged at the 5.25%-5.50% range. The major is rising on the advancement in US Treasury bond yields and trades at 147.71, at around yearly highs.

USD/JPY trades at 147.71, buoyed by rising US Treasury yields, as markets look forward to key central bank meetings this week

Investors’ sentiment has turned sour ahead of the Fed. Besides the monetary policy decision, Fed Chair Jerome Powell and Co. will update their economic forecasts and Federal Funds Rate (FFR) expectancy. The last Summary of Economic Projections (SEP) witnessed policymakers expecting a 1% economic growth while the unemployment rate would climb to 4.1%. The Fed’s preferred inflation gauge, the PCE, is estimated at 3.2%, and the core PCE at 3.9%. The same report projects the FFR to peak at around 5.60%.

In the meantime, the Bank of Japan (BoJ) will also reveal its decision on September 22, in which the BoJ is not expected to raise rates. Still, it would be interesting to see if there are some expressions about additional tweaking to its Yield Curve Control (YCC) and discussions about ending its negative interest rates program.

Data-wise, August’s US building permits rose above estimates, and housing starts tumbled the most since 2020, down at -11.3%. On the Japanese front, its docket would feature the Balance of Trade for August, estimated at ¥-659.1B, while Exports are foreseen to shrink by -1.7%.

USD/JPY Price Analysis: Technical outlook

Consolidation is the name of the game with the USD/JPY pair. The threat of intervention by Japanese authorities refrains investors from opening fresh long bets in the pair, which could have easily tested the 150.00 threshold if not for the abovementioned. Initial resistance for the USD/JPY is seen at 148.00 before climbing towards the October 31 daily high at 148.84. A downward correction wil face the Tenkan-Sen at 146.92, followed by the Kijun-Sen at 146.19.