NY FX outlook: assessing the market's reaction to a hawkish shift under Warsh (ウォーシュ), with possible implications for the BoJ tomorrow

The New York market today is expected to focus on assessing the market's reaction after yesterday's Federal Open Market Committee (FOMC) meeting signaled one more 25-basis-point rate hike this year. The decision is expected to ease some of the bond market's concerns and affect movements in long-term yields.

The earlier sell-off in US Treasuries was driven by renewed gains in crude oil futures, fiscal concerns and uncertainty over the political independence of Fed Chair Warsh (ウォーシュ), but some observers say the rate hike has established the view that Chair Warsh (ウォーシュ) is not merely a puppet, meaning that one of the market's concerns has receded. In Asian markets, reports indicated that the rise in US long-term yields had narrowed.

The focus today will be on whether US yields resume their upward trajectory on the back of the Fed's hawkish stance or whether the rise pauses as the negative factors have been fully priced in. The next FOMC meeting, scheduled for 27–28 October, will be held just before the US midterm elections and is therefore expected to be skipped, while an additional rate hike at the December meeting is viewed as the base case. The probability of a December hike is said to be around 90%.

The Fed's hawkish stance is expected to affect central banks across Asia and Oceania. In contrast to China and Thailand, which continue to ease monetary policy, the possibility is growing that Australia and Japan will increase the size of their rate hikes or accelerate the pace of tightening. In Japan, the market's focus will be on the BoJ's future policy stance ahead of its monetary policy meeting.

For the dollar-yen range, the upper bound is around ¥156.42, the high on the 16th. Based on the base line, the daily range's upside target is around ¥156.64, while the downside target is around ¥154.66 to ¥154.86, from around the conversion line to ¥154.86.