USD/JPY inter-market: Range-bound before Fed, focus shifts to BOJ

USD/JPY rallied as high as 106.54 in the Asian session this Wednesday, after Japan’s PM Abe confirmed more than JPY 28 trillion economic stimulus package, of which details will be announced on Aug 2.

However, the major failed to sustain at higher levels and turned back below 106 handle, as speculation surrounding the stimulus package finally came to an end. During the European hours, the dollar-yen pair took a breather from Asian volatile trades and consolidated in a narrow range around 105.50 levels, as the calm spread across the markets ahead of the FOMC decision lined up release in the American session today.

Apart from the fiscal stimulus news, the major was also influenced by the yield differentials and persistent risk-on trades. While higher Fed funds rate futures also point towards increased odds of a Fed rate hike this year. These factors justify the strong upmove in the USD/JPY pair.

The CBOE volatility index (VIX) drops over 3% and trades around 12.60 levels, considerable lower from 13.50 levels seen earlier this week. While the Fed funds rate future hover near weekly tops reached above 155.50 levels, just as the 10-year yield differentials between the treasuries and JGBs continue to remain USD positive.

The USD/JPY pair may display limited reaction to the Fed outcome, as the main focus now remains the BOJ policy decision for fresh direction on the pair.