According to Sean Callow – Senior Currency Strategist at Westpac – the combination of the FOMC and BoJ meetings really should have supported USD/JPY.
Key Quotes:
The Fed delivered a priced-in rate cut and sent a clear signal of a possibly extended pause. Yet US yields reversed their initial jump on the statement, undermining USD/JPY.
The BoJ meanwhile took a leaf out of the ECB’s playbook by dropping the date reference and adopting rates guidance or yields at "present or lower levels as long as it is necessary" to guard against loss of momentum towards 2% inflation. Perhaps some had hoped for a deposit rate cut or a notable change on ETFs, as USD/JPY probed session lows around 108.60.
With the US economy still growing above trend in Q3 and Fed officials set to hit the road to promote their case for a pause, downside on yields should be limited. So too elevated global equity prices and reiteration that US-China trade talks are on track argue for USD/JPY to at least hold its ground near term. We opt for a neutral bias on the week.
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