Nomura Research discusses the USD reaction around this week's FOMC and BoJ policy meetings.
"The most important event for USD/JPY this week is the FOMC meeting on Wednesday. Although the market has priced in the possibility of a 50bp hike in September at 80-90%, the initial reaction is likely to be a stronger USD/JPY if the median 2022 dots is 2.875% and a weaker USD/JPY if it is 2.625%.
Actual JPY buying intervention is still unlikely, but the BOJ’s reaction this week is crucial for JPY. Although we do not expect the BOJ to change its policy at this week’s meeting, after the BOJ shared concerns over rapid JPY weakness with the government in the statement, Governor Kuroda’s comments on FX may clearly change, potentially judging JPY weakness is no longer positive for Japan’s economy. Then, investors’ expectations for BOJ normalization may recover, which would likely strengthen JPY," Nomura notes.
"Recent price action has been disappointing for our bullish JPY view, but we still believe USD/JPY retracement is likely into H2 this year, maintaining USD/JPY short exposure via digi put options (125, expire on 5 September)," Nomura adds.