USD/JPY's uptrend is being nurtured by a BOJ willing to keep rates near zero despite a firming economy and rising inflation and by the massive GPIF government pension fund and others looking for better returns outside of Japan.
If today's FOMC promotes tightening plans in a way that keeps Treasury yields attractive while limiting derisking due to tightening too aggressively, USD/JPY could confirm a multi-year bullish reversal aimed at 118.66, the December 2016 peak.
Despite the BOJ noting it must weigh the pros and cons of its ultra-loose monetary policy, it's showing no inclination to let shorter term rates rise away from zero, despite CPI rising from 0.6 percent in April to 1.3 percent in August, GDP rebounding to 1.9 percent in Q2 and the Nikkei rallying toward multi-decade highs, sharpening contrast from Fed hikes and rising nominal and real Treasury-JGB spreads.
MOF data show Japanese investors ramping up foreign bond buying.
And GPIF says it is disinclined to buy more JGBs to reach the low end of its allocation range because JGBs offer such poor returns, according to a Bloomberg story.
That implies more demand for Treasuries and the dollar.
A post-FOMC close above 113.24/27, the 200-WMA and 61.8 percent Fibo of the 2016-18 drop, is key to confirming the long-term reversal.