- Risk appetite weighs on safe haven JPY and helps USD/JPY regain upward traction.
- BoJ monetary policy decision does little to provide a significant boost to the pair.
- Market focus remains on the outcome of the two-day FOMC meeting on Wednesday.
At the start of Wednesday’s European session, USD/JPY has climbed to new daily highs just above the 109.50 level, following its steady intraday rise. According to the time of writing, the pair is retreating somewhat and is holding around 109.45.
As risk appetite in the markets returned on Wednesday, the pair found decent support and attracted fresh buying near the 109.10 region. Mainland China’s Evergrande has said it will make an upcoming bond coupon and eased immediate fears of a corporate collapse. As a result, global risk sentiment has increased, weighing on the safe haven Japanese yen and providing a nice boost to the USD/JPY.
The JPY has been further affected by the Bank of Japan’s (BoJ) willingness to maintain its ultra-loose monetary policy stance amid the economic slowdown caused by the coronavirus pandemic. At the beginning of the day, the Japanese central bank left its benchmark interest rate unchanged at -0.1% and its target for the 10-year JGB at around zero. Moreover, the BoJ reiterated that it would buy JGBs without an upper limit.
However, the US dollar has been supported by expectations of an imminent Fed announcement and a modest rebound in US Treasury yields. Therefore, the market will remain glued to the outcome of the two-day FOMC meeting. The Fed will announce its decision later in the U.S. session on Wednesday, and investors will be watching for more clues about the likely timing of the tapering program.
Besides this, the latest economic projections, particularly the so-called dot plot, will influence near-term USD price dynamics. This, combined with broader market risk sentiment, should help investors determine where USD/JPY is headed.