USD/JPY coils just above 149.00 ahead of BoJ, Fed action

• Heavy week for USD/JPY with BoJ and Fed in the barrel.
• Bank of Japan widely anticipated to pivot away from negative rates.
• Fed to update Dot Plot of interested rate expectations on Wednesday.

USD/JPY is churning chart paper just above the 149.00 handle as investors gear up for a central-bank-heavy week. The Bank of Japan (BoJ) is expected to deliver an update on its negative interest rate regime early in the Tuesday market session after Japan’s spring wage negotiations showed the highest wage increases in over three decades. The Federal Reserve (Fed) is also expected this week and will drop its latest Dot Plot summary of interest rate projections on Wednesday.

The BoJ widely telegraphed that any moves on interest rates would hinge on the results of spring wage negotiations in Japan. Union-negotiated wage increases soared over 5% this year, a 31-year high. Market hopes of rate hikes from the BoJ have pinned into the high side, and uncorroborated reports from the Nikkei news service in Japan insist that the BoJ has already agreed internally to raise interest rates to a 0.0-0.1% range. Japan’s main reference rate is currently near -0.1%. The BoJ is expected to drop its latest rate call sometime early Tuesday.

The Fed will hit markets with its latest rate call on Wednesday, to be followed by another press conference from Fed Chairman Jerome Powell. The Fed will also update its Dot Plot summary of interest rate projections. Rate-cut-hungry markets are increasingly worried the Fed is going to ease back on rate cut expectations. The Fed’s last Dot Plot suggested a median forecast of three rate cuts through 2024, totaling around 75 basis points in rate slashing by the end of the year. Money markets entered 2024 expecting a whopping six or seven rate cuts totaling an eye-watering 175-200 basis points.

As the US economy proves far more resilient than rate watchers expected, and US inflation remains stickier than hoped, rate futures markets have been knocked firmly back, with rate expectations falling to match the Fed’s own Dot Plot in March. According to the CME’s FedWatch Tool, markets were pricing in nearly 70% odds of a first rate cut from the Fed in June as recently as last week. That number has eased to around 50-50 odds on Monday.

US Purchasing Manager Index (PMI) figures are due in the back half of the trading week, as well as Japanese Trade Balance numbers on Thursday followed by Japanese National Consumer Price Index (CPI) follow-up inflation numbers early Friday.

USD/JPY technical outlook

USD/JPY is broadly flat on Monday, testing the waters just north of the 149.00 handle. The pair pushed into the north side of a descending 200-hour Simple Moving Average (SMA) last week, which is settling into the 148.00 region. 151.00 remains a key technical ceiling in the near term, and intraday momentum remains in the hands of the bulls with the pair bouncing into a recovery from 146.50.

USD/JPY hourly chart