USD/JPY Fundamental Daily Forecast – Hawkish Fed Could Drive Dollar/Yen into 113.210 to 113.381

The Dollar/Yen is trading slightly lower early Wednesday. The range is limited and volume is light as investors prepare for the U.S. Federal Reserve’s interest rate decision, monetary policy statement and press conference scheduled for 1800 GMT.

At 0544 GMT, the USD/JPY is trading 112.909, down 0.064 or -0.06%.

At the conclusion of the Fed’s two-day policy meeting on Wednesday, the central bank is widely expected to raise its benchmark interest rate for the eighth time since December 2015. Investors have been counting on this rate hike for weeks, and have also begun to price in another rate hike in December. However, the number of rate hikes in 2019 remains a mystery.

The focus of Wednesday’s monetary policy statement and economic projections will be on the Fed policy outlook and on any comments surrounding the global trade dispute and its potential impact on future economic growth.

Investors will be watching closely to see if the Fed provides any signals as to where monetary policy will be heading over the coming months into next year.

The market is fearful that dovish rate hikes are a thing of the past. Traders will be watching the policy statement to see if the central bank removes the word “accommodative”. This would mean that the days of gradual rate hikes may be over. However, the Fed has to be careful with how it phrases things because it doesn’t want to crash the stock market, or stop economic growth.

A dovish Fed message will be bearish for the USD/JPY. If traders perceive a hawkish Fed message then look for the current rally to possibly extend into a series of tops ranging from 113.210 to 113.745.

In other news, the BOJ Core CPI came in at 0.5%. This was below the 0.6% forecast.

In the U.S., before the Fed activity at 1800 GMT, investors will get the opportunity to react to New Home Sales. They are expected to come in at 630K, up slightly from the previously reported 0.5% increase.