USD/JPY Hits Multi-Month Highs Near 147.95 as Focus Shifts to Fed Decision

The USD/JPY pair continues its upward trajectory, reaching fresh multi-month highs near 147.95, poised to record a second consecutive week of gains. However, the Greenback faces some selling pressure after softer consumer sentiment figures from the US in September. Despite this, the US Dollar Index (DXY) is set to conclude its eighth consecutive winning week, having gained more than 5% since July. On the other hand, the Japanese Yen (JPY) has relinquished its earlier gains sparked by Governor Ueda’s comments earlier this week, and the Bank of Japan’s (BoJ) dovish stance leaves the Yen exposed to further vulnerabilities.

Investors are now gearing up for the highly anticipated Federal Reserve (Fed) decision scheduled for this week. The previous week saw key inflation data from August, measured by the Consumer Price Index (CPI), surpass expectations. Additionally, economic activity indicators, including August’s Retail Sales figures and Jobless Claims for the second week of September, painted a positive picture of the US economy.

In terms of expectations surrounding the Fed’s decision, the CME FedWatch tool indicates that the odds of one final interest rate hike have slightly decreased but remain relatively high, standing at around 35%. This marginal decline could be attributed to the European Central Bank’s (ECB) dovish tone on Thursday, following its decision to hike rates by 25 basis points. ECB President Christine Lagarde refrained from committing to another rate hike, which has prompted some market speculation.

Nevertheless, the US economy appears to be maintaining its momentum, and Fed officials have ample reasons to consider one last rate hike.

On the Japanese Yen front, Governor Ueda highlighted the importance of local wage and inflation trends in guiding monetary policy decisions. While he mentioned the possibility of data accumulation by year-end that could lead to policy considerations, the initial enthusiasm in the Yen has since waned. The upcoming BoJ meeting is not expected to result in any changes to the ultra-loose policy, but market participants will closely monitor any alterations in the bank’s economic forecasts.