USD/JPY: Buy Dips Into FOMC & BoJ This Week - Credit Agricole

In the very short-term it will be about this week’s Fed monetary policy announcement to drive sentiment. A combination of stabilizing China-related growth expectations, still constructive domestic conditions and improving commodity price developments to the benefit of rising medium-term inflation expectations may make a case of the Fed considering a less dovish rhetoric.

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In fact, 5y forward breakeven rates rose to the highest level since January this year. However, a more hawkish Fed’s dampening impact on risk sentiment may be compensated by a more aggressive stance by the BoJ.

Broadly stable sentiment combined with diverging Fed-BoJ monetary policy expectations should keep USD/JPY a buy on dips.

It must be noted that our economists remain of the view that the BoJ will increase QE this week and focus on purchasing Japanese blue chip stocks.