On Tuesday, there is some selling pressure on USD/JPY due to general USD weakness. The dollar is hampered by expectations that the Fed would tone down its aggressive attitude. The Fed-BoJ policy divergence should constrain losses for the pair before the FOMC meeting.
On Tuesday, the USD/JPY pair saw new supply and fell to a new daily low in the mid-147.00s of the European session. The pair is now under pressure from several causes and seems to have delayed its recovery from the psychological level of 145.00, or the almost three-week low reached last Thursday.
Speculations that authorities may intervene again to prevent a further sharp decline in the native currency help boost the Japanese yen. It is noteworthy that Japan invested a record amount of 6.3499 trillion in two unannounced currency interventions during trading days in October. The USD/JPY pair is under pressure to decline due to this and the development of some selling surrounding the US currency.
In reality, despite the possibility of a less aggressive Fed, the USD Index, which gauges the dollar’s performance against a basket of six currencies, fails to benefit from the recent recovery from a one-month low. Due to indications of a downturn in the US economy, market players now anticipate the US central bank to moderate its aggressive attitude. This only weakens the dollar as US Treasury bond rates continue to decline.
The Fed, however, is still on pace to announce a further supersized 75 bps rate rise on Wednesday, marking its fourth consecutive increase of this magnitude. The Bank of Japan, on the other hand, maintained interest rates at historic lows on Friday and reaffirmed its intention to keep the 10-year bond yield at 0%. As a result of the significant disparity between the two central banks, the USD/JPY pair should find some support.
Additionally, before the big central bank event risk, traders could be hesitant to make solid directional wagers and instead choose to withdraw from the market. Meanwhile, the USD/JPY pair will be watching Tuesday’s US data docket, which features the publication of the ISM Manufacturing PMI, for potential short-term trading opportunities.