Title: USD/JPY remains sideways around 143.00 ahead of Fed-BOJ interest rate policy

September 19, 2022 12:01 AM ET

By: AnalysisWatch

The USD/JPY pair is witnessing a bouncy market structure as investors have been sidelined ahead of the Federal Reserve (Fed) and Bank of Japan (BOJ) monetary policies. The cross is hovering around 143.00 and a loss of upward momentum is visible. Therefore, the critical support of 142.50 will remain in action.

The U.S. Dollar Index (DXY) defended its downward direction after feeling buying interest around 109.50 during the Tokyo session. Investors have begun to pump money into the DXY as the chances of a rate hike by the Fed increase. The Fed is expected to announce a third consecutive 75 basis point (bps) rate hike as price pressures are needed to set it sooner.

A review of past events indicates that the core consumer price index (CPI) is not responding well to the current pace of rate hikes. Therefore, the Fed could either announce more quantitative tools to resolve the inflationary chaos or further accelerate the pace by announcing a 100 basis point rate hike.

At the same time, the risk profile is worsening as US President Joe Biden warned that the US military would defend Taiwan if China strikes.

On the Tokyo front, BOJ policymakers are expected to end the yen's prolonged ultra-loose monetary policy to protect it from further depreciation. A "neutral" approach is expected from BOJ policymakers and no new stimulus package will be announced. Japanese officials are already concerned about the depreciation of the yen and are preparing to intervene in the foreign exchange markets. Therefore, a neutral approach is expected.