Next week will be a global central bank week, with the FOMC and the Bank of Japan's monetary policy meeting. USD/JPY is trading in the lower 154 range, and the next move following the release of US CPI will be closely watched.
Next week, the FOMC and the Bank of Japan's monetary policy meeting, the events drawing the greatest attention from global financial markets, will take place back to back. USD/JPY temporarily rose to ¥154.67 against a backdrop of higher oil prices and rising US PPI, and is currently trading in the lower 154 range. Market attention is expected to focus on the US monetary policy decision and the possibility of the Bank of Japan's next rate hike.
This article organizes the moves already priced into the market and the levels that could prove to be turning points, and presents practical scenarios and trading strategies. A 0.25% rate hike by the Federal Reserve is priced in, while an additional rate hike by the Bank of Japan is widely expected, meaning the interest-rate differential could shift again depending on the outcome of the two meetings.
Four potential scenarios, A through D, are presented. Scenario A assumes a combination of a US rate hike and a cautious Bank of Japan, B assumes a relatively neutral rate hike and a hold, C assumes broad-based dollar weakness, and D assumes a surprise involving a major move by the Bank of Japan. The expected range and USD/JPY reaction under each scenario are shown, along with suggested responses based on a volatile market environment.
The practical trading strategies are explained in terms of 3 waves. The first covers the response to the move immediately after the FOMC, the second the reaction immediately after the Bank of Japan's decision is announced, and the third the response during Governor Ueda (植田)'s press conference, depending on his stance. Each is explained together with specific price ranges and stop-loss levels. The strategies emphasize identifying whether the initial move has fully priced in the news and is likely to reverse.
The article concludes that next week's key issues are whether the US will resume rate hikes and whether the Bank of Japan will accelerate the pace of its rate hikes. It reiterates the importance of calmly assessing the stance expressed at the press conference without being misled by noise in the initial market reaction.