Yen Strengthens Against Dollar Ahead of Fed and BoJ Decisions
The Japanese yen strengthened against most major currencies in the European session on Monday (March 16), except against its antipodean counterparts, as markets prepared for a busy week of central bank decisions. The USD/JPY pair fell 0.26% to around 159.30, reflecting the yen's strength amidst a mild US dollar weakness ahead of the Federal Reserve and Bank of Japan meetings.
Market attention now turns to the Fed's decisions on Wednesday and the BoJ's on Thursday. Investors widely expect the Fed to hold interest rates in the 3.50%–3.75% range, as US inflation expectations have been lifted by the surge in oil prices following the closure of the Strait of Hormuz. According to CME FedWatch, the market also sees no chance of a rate cut before the October meeting.
On the dollar side, the Dollar Index (DXY) fell about 0.22% to near 100.30, although it remains close to the more than nine-month peak of 100.54 reached on Friday. This means that the yen's strengthening so far has been driven more by short-term position adjustments ahead of two major central bank meetings, rather than a major shift in the dollar's trend.
For the BoJ, the market expects interest rates to be held at 0.75%, while keeping the option of further tightening open. The main focus will be on Governor Kazuo Ueda's press conference, particularly regarding the extent to which rising oil prices could boost Japanese inflation and depress economic growth.
Fundamentally, the surge in oil prices is actually unfavorable for the yen because Japan remains heavily dependent on energy imports. The Japanese government has also begun drawing down oil reserves to meet domestic demand amid growing supply concerns stemming from the US-Israel-Iran war. Therefore, the yen's future direction will be largely determined by the BoJ's tone: whether it emphasizes inflation risks or highlights the economic burden of high energy prices.
Source: Newsmaker.id
