USD/JPY surges in Tokyo to pressure shorts and stops

USD/JPY is currently trading at 108.91 between a range of 108.62 and 108.91 and climbing some 0.2% on the session as the dollar pulls some punches ahead of the Federal Reserve's interest rate decision later today. 

Overnight, USD/JPY rose from 108.10 to 108.75 while the yen was sold off by the Bank of Japan’s downgraded inflation forecast.

Meanwhile, the US dollar was mixed versus the G10 on the day and US treasury yields climbed despite improved demand in the seven-year auction.

Traders were positioning for the outcome of the two-day Federal Open Market Committee meeting on Wednesday which left the 2-year government bond yields climbing to 0.18% and the 10-year government bond yields increasing to 1.62%.

Westpac's outlook for the FOMC

''The FOMC meeting statement is unlikely to change materially in April from March given that the recovery and risks are broadly as they were,'' analysts at Westpac argued.

''Market participants will focus instead on the post-meeting press conference of Chair Powell, in particular, his view of the progress necessary for a tapering of asset purchases to be considered'' they explained. 

Finally, the analysts say that they ''continue to believe communicating a potential change of policy is a long way off, let alone acting on it, with the FOMC keen to maximise the return from this recovery, and, ''given the US's current momentum; the path of policy; and remaining risks, the taper is most likely to occur in the second half of 2022, with federal fund rate hikes to come well after that.''