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Dollar-yen outlook with release of Fed projections

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Naoto Arase, Head of the Fintech Department at PPLS.

Dollar-yen outlook with release of Fed projections

The dollar-yen currency pair was supported in the mid-147-yen range as of September 20 and updated its year-to-date high, which was slightly above the 147.96 recorded last Friday, rising to 147.98.

The technical outlook shows strong buy signals continuing in all tenors, from lower legs (like four-hour legs) to upper legs (such as daily and weekly).

And from a fundamental aspect, there are also many factors suggesting a rise in the dollar-yen exchange rate.

These include expectations of prolonged fiscal tightening by the US Federal Reserve and predictions of a continuation of monetary easing by the Bank of Japan.

As well as this gap between Japanese and US monetary policies to consider, there is also the accompanying expectation of a continuation of yen carry trades.

In this context, all eyes were on the US Federal Open Market Committee (FOMC) meeting of September 19-20.

Attention was focused on the release of the Summary of Economic Projections (SEP) scheduled for 1am Cambodian time on September 20, and the following press conference by Federal Reserve Board Chairman Jerome Powell at 1:30am.

While the interest rate policy was expected to remain unchanged, the SEP could leave room for an additional interest rate hike within the year.

This scenario or suggestions of a delay in the start of interest rate cuts next year – if the dot plot remains unchanged from the previous June – could confirm expectations of prolonged monetary tightening by the Fed.

Should Powell not change his stance, it would be perceived by the market as hawkish, with a “US interest rate hike equals US dollar buying” route subsequently expected.

This could cause the dollar-yen pair to break the psychological barrier of 148.00 and surge towards the 148.86 high of October 31 last year.

Based on the aforementioned as of September 20, we continue to expect the continuation of the dollar buying-yen selling trend – a resumption of dollar buying following the US FOMC meeting – as the main scenario.

The outlook for the dollar-yen currency pair from September 20-22 is in the expected range of 147.00-149.00.

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