USD/JPY rises ahead of BoJ meeting

The Japanese yen has edged lower on Wednesday. In the North American session, USD/JPY is trading at 154.08, up 0.37% on the day. It has been a rough December for the yen, which has declined 2.9% against the US dollar.

Bank of Japan expected to hold rates

The Bank of Japan meets early Thursday and is expected to maintain its benchmark rate at 0.25%. The BoJ has kept rates steady since July but has signaled that its next rate move will be a hike. This puts the BoJ at odds with other major central banks, which are busy lowering rates in response to lower inflation.

The BoJ is moving slowly towards normalization and although this year will almost certainly end without another rate hike, the market is anticipating a hike in January or February. Investors will be looking for clues about the BoJ’s rate path but the BoJ tends to be vague about its rate plans and this is likely to be the case at the Thursday meeting.

The Federal Reserve makes its rate announcement later today. There isn’t much excitement around the decision, with the market pricing in a quarter-point cut at close to 100%.  Investors will be interested in the updated economic and interest rate projections. President-elect Trump will take office in January which adds significant uncertainty for Fed policymakers.

What can we expect at today’s meeting? The Fed is expected to signal that it plans a slower pace of rate cuts next year. The decline in core inflation has stalled and the labor market remains strong, which means that the Fed can afford to take its foot off the rate-cut pedal in January. As well, President-elect Trump takes office next month and the Fed may want to wait and see if Trump enacts tariffs, which would push inflation higher. Powell may reiterate that the Fed is looking to trim rates at a “gradual pace”, which would mean in modest increments of 25 basis points.

USD/JPY Technical

• USD/JPY has pushed above resistance at 153.66. The next resistance line is 154.17
• 152.99 and 152.48 are the next support levels

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