JAPANESE YEN AWAITS FED DECISION BEFORE THE NEXT LEG OF A DIRECTIONAL MOVE

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  • The Japanese Yen continues to be undermined by the divergent BoJ-Fed policy expectations.
  • Bets that the Fed will keep rates higher for longer, lift the USD, and lend support to USD/JPY.
  • The risk-off impulse underpins the safe-haven JPY and caps gains ahead of the FOMC decision.

The Japanese Yen (JPY) registered heavy losses against its American counterpart on Tuesday and reversed a major part of the previous day's sharp gains led by a possible intervention by Japanese authorities. The main driver of the JPY weakness is the interest-rate differential between Japan and the United States (US), which is expected to remain wide for some time. This, along with a goodish pickup in the US Dollar (USD) demand, provided an additional lift to the USD/JPY pair and contributed to the strong intraday move up. 

The USD buying remained unabated during the Asian session on Wednesday amid growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer, bolstered by incoming US macro data that pointed to still sticky inflation. That said, the risk-off impulse – as depicted by the overnight slump in the US equity markets and a sea of red across the Asian equity markets – lends some support to the safe-haven JPY. This, in turn, acts as a headwind for the USD/JPY pair ahead of the crucial FOMC policy decision later today.


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