Will U.S.-Japan-Europe monetary policy meetings determine the direction of USD/JPY? Not necessarily. As markets are shaken by the plunge in AI-related stocks, the real risk to watch is the U.S. midterm elections! | Rikiya Shima's “Questioning Market Conventions”

Risk aversion spread against the backdrop of a plunge in AI-related stocks, pushing USD/JPY below the range around ¥158 and sending the yen stronger into the ¥156 range. With monetary policy meetings at the FOMC, ECB and Bank of Japan scheduled for this week, unchanged policy is seen as the market's main scenario.

At the FOMC meeting on 27 to 28 October, a rate hold is viewed as almost certain. The focus is expected to shift to Chair Warsh's views and whether there will be a rate hike in December. While the market's probability of a December rate hike is rising, dollar movements may be influenced by how the recent stock-market decline and interest-rate trends are assessed.

At the ECB Governing Council meeting on 28 to 29 October, the status quo is considered highly likely, while the response to turmoil in the French government bond market and the outlook for a December rate hike will be key points of focus. The euro could also move depending on President Lagarde's remarks.

At the Bank of Japan's Monetary Policy Meeting on 29 to 30 October, unchanged policy is considered almost certain. The focus will be on the inflation outlook in the Outlook for Economic Activity and Prices and any indication of a December rate hike. It has also been suggested that the stock-market decline could make the Bank of Japan more cautious in its rate-hike decision.

Overall, some view the impact of these policy meetings as limited, while the prevailing view is that the U.S. midterm elections on 3 November will have a major influence on market-wide movements. The outcome of the election is expected to have significant spillover effects on the outlook for the U.S. economy and the dollar.