USD/JPY approaches annual highs awaiting Fed and BOJ decisions

• USD/JPY remains near yearly highs, as investors remain cautious awaiting policy decisions from the US Federal Reserve and the Bank of Japan (BoJ).
• The Fed is expected to keep rates unchanged, focusing on economic forecasts and Federal Funds Rate (FFR) projections.
• The Bank of Japan is not expected to raise rates, but may provide insight into possible changes to its Yield Curve Control and negative interest rate policies.

The pair USD/JPY remains dovish at the start of Tuesday’s session, awaiting the US Federal Reserve’s decision on Wednesday, in which the US central bank is expected to keep rates unchanged in the 5.25%-range. 5.50%. Major currencies rise on the back of rising US Treasury yields and are trading at 147.71, near yearly highs.

USD/JPY trades at 147.71, buoyed by rising US Treasury yields, as markets look forward to this week’s key central bank meetings

Investor sentiment has soured ahead of the Fed meeting. In addition to the monetary policy decision, Fed Chair Jerome Powell and company will update their economic forecasts and expectations for the Federal Funds Rate (FFR). ). In the latest Summary of Economic Projections (SEP), policymakers expected economic growth of 1%, while the unemployment rate would rise to 4.1%. The Fed’s preferred inflation gauge, the PCE, is estimated at 3.2%, and the core PCE is estimated at 3.9%. The same report predicts that the FFR will reach a maximum of around 5.60%.

Meanwhile, the Bank of Japan (BOJ) will also reveal its decision on September 22, in which it is not expected to raise rates. However, it would be interesting to see if there are any changes to its yield curve control and whether there is discussion about ending its negative interest rate program.

In terms of data, US building permits in August exceeded estimates, and new home construction recorded the largest drop since 2020, with a decline of -11.3%. On the Japanese front, your agenda will include the August Trade Balance, estimated at 659.1 billion yen, while exports are expected to contract -1.7%.

USD/JPY Price Analysis: Technical Outlook

Consolidation is the name of the game with the USD/JPY pair. The threat of intervention by the Japanese authorities prevents investors from opening new long bets on the pair, which could have easily tested the 150.00 threshold if not for what was mentioned above. Initial resistance for USD/JPY is seen at 148.00 before rising towards the October 31 daily high at 148.84. A downward correction will face the Tenkan-Sen at 146.92, followed by the Kijun-Sen at 146.19.