- USD/JPY is oscillating around 143.00 as the focus shifts to Fed-BOJ monetary policies.
- The Fed could accelerate the interest rates by a full percent to cool down the red-hot inflation.
- BOJ policymakers may conclude the prolonged ultra-dovish monetary policy.
The USD/JPY pair is witnessing a topsy-turvy market structure as investors have shifted to the sidelines ahead of the monetary policies by the Federal Reserve (Fed) and the Bank of Japan (BOJ). The cross is hovering around 143.00 and a loss in upside momentum is visible, therefore, the critical support of 142.50 will remain in action.
The US dollar index (DXY) has defended the downside bias after sensing buying interest around 109.50 in the Tokyo session. Investors have started pouring funds into the DXY as odds of a rate hike by the Fed are soaring. The Fed is expected to communicate a third consecutive rate hike by 75 basis points (bps) as price pressures are needed to fix sooner.
Scrutiny of prior events indicates that the core Consumer Price Index (CPI) is not responding well to the current pace of rate hikes. Therefore, the Fed could announce more quantitative tools to fix the inflation chaos or accelerate the pace further by announcing a rate hike by 100 basis bps.
Meanwhile, the risk profile is turning sour as US President Joe Biden has warned that the US military would defend Taiwan if China strikes the latter.
On the Tokyo front, BOJ policymakers are expected to terminate the prolonged ultra-loose monetary policy in order to safeguard yen from further depreciation. A ‘neutral’ approach is expected by the BOJ policymakers and no further stimulus packages will be announced. Japan officials are already worried about the depreciating yen and are preparing to intervene in the Fx moves, therefore, a neutral move matches the expectations.