Credit Agricole Research discusses its expectations for USD/JPY price action around today's FOMC policy decision.
"First, if Powell were to remain dovish and the FOMC’s dot plots point to no rate hikes in 2022, this would be good news for the sentiment (and likely the AUD and NZD) and likely weaken the JPY and the USD. USD/JPY would most likely be left drifting lower. ..We continue to think negative rates are unlikely, but if they were muted, would weigh heavily on the USD/JPY," CACIB notes.
"A second more likely outcome in our view, is that the FOMC is upbeat. Recent economic data have stabilized and the US looks as though it has started the long road to recovery. In the unlikely event that the Fed mentions the recent riots, it would likely say they are a temporary shock it does not need to respond to. This rhetoric should be positive for the USD/JPY, but how positive will depend on equity markets’ reaction to the Fed.
An equity market sell off on the back of the idea that the Fed could be set to withdraw the “punchbowl”, would give the JPY a boost (and weaken the AUD and NZD) and hold the USD/JPY’s rally back, this would especially be the case if the Fed’s dot plot showed a rate hike in 2022," CACIB adds.