Despite the upside surprise in U.S. CPI, dollar/yen has been unable to recover to the 153 level, and this week's focus will be the FOMC and the BOJ's next rate hike. The expected range is ¥151.50–155.00, with the downside around ¥152 and the upside at ¥154.65–155.00 seen as important levels.
This week's U.S.-Japan week will feature both the U.S. FOMC and the BOJ's monetary policy meeting, but market expectations for rate hikes are currently highly unsettled. The view that a rise in U.S. yields alone will provide limited upside for dollar/yen remains prevalent, and many market participants believe that the currency pair's rebound will remain limited despite the upside surprise in U.S. CPI.
Headline U.S. CPI rose 0.4% month on month in August, while core CPI rose 0.3%, pushing up expectations for a Federal Reserve rate hike. Dollar/yen, however, remained between the low ¥152s and the upper ¥153s, and the impact of an additional rate hike is being viewed as limited. This week's U.S. and Japanese central-bank events will be a key point in determining the balance of factors driving the market.
The focus for the FOMC is expected to depend on the dot plot, whether the press conference hints at additional rate hikes, and the market's reaction after the press conference. For the BOJ, the key will be how strongly it encourages the market to focus on the timing of the next rate hike. While a hike to 1.25% is already being priced in, analysis suggests that signals regarding the next move could determine the direction of the yen.
Technically, the downside inflection point is expected at ¥152.887, and the upside inflection point at ¥154.65–155.00. Although the RSI remains at a low level, analysts point out that trading may continue within the range depending on the unwinding of yen carry trades and the BOJ's policy stance.