Monday saw a sharp dip in the USD/JPY post-Asia close, influenced by Nikkei headlines ahead of the BoJ’s decision. These reports suggested 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 at NY close.
Market participants are keenly awaiting comments from Governor Kazuo Ueda on a flexible cap for the 10-year Japanese Government Bond (JGB) yield, alongside unlimited fixed-rate purchases by BoJ. Speculations suggest that the BoJ might maintain a 1% cap but allow +/-0.5pp fluctuations, fulfilling some conditions set out in the Nikkei piece and renewing focus on the outcome.
On Monday, Federal Reserve (Fed) Chair Jerome Powell confirmed a stable interest rate for November, with possible hikes contingent upon high economic growth and labor shortage conditions. Hawkish comments from Fed officials might limit further US Dollar depreciation and support the USD/JPY pair.
The forthcoming BoJ monetary policy meeting, press conference, and Fed interest rate decision are pivotal events that could trigger market volatility.
Additionally, economic data such as jobless rate, retail sales, industrial production figures, and housing start figures due to precede the decision were highlighted. Despite low expectations from sell-side analysts, option expiries today might influence spot moves. The breach of the 20-day EMA exposes the 50-day EMA as the next support.
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