Yen Goes Offered As Focus Turns To BoJ

USD/JPY generally traded in a bullish bias Wednesday, seeking direction after the Fed's monetary policy announcement. The BoJ picks up the baton today, set to conclude its own policy review.

• The FOMC raised interest rates by 75bp and forecast a steeper tightening path, while Fed Chair Powell reaffirmed commitment to bringing inflation under control, even if it won't be a painless process. By contrast, the BoJ is expected to leave its monetary policy settings ultra-loose today.
• U.S. Tsy yield curve flattened post-Fed, driving adjustments in yield spreads with Japan. 10-Year gap was 3.6bp narrower come the end of play; 2-Year differential widened 6.9bp, refreshing 16-year highs. Note that the yield on 10-Year JGBs keeps testing the 0.25% cap as the BoJ debates policy.
• Post-Fed risk rout lent support to JPY on other crosses, as just NOK and USD fared better in G10 FX space. U.S. equity space took a hit from the hawkish Fed message, with S&P 500 down 1.7% come the closing bell.
• Buying interest returned this morning as the region is catching up with post-Fed impetus, with USD/JPY last seen +39 pips at Y144.42. The initial bullish target is provided by Y145.00, albeit heightened intervention risk has kept this level intact so far. Bears look for a pullback under Sep 9 low of Y141.51.
• Note that Japanese financial markets will be closed tomorrow in observance of a public holiday.

Fig. 1: U.S./Japan 2-Year Yield Spread vs. USD/JPY

Source: MNI - Market News/Bloomberg