The USD/JPY pair is trading flat around 154.10 during Tuesday’s early Asian session. Traders are choosing to stay on the sidelines as they wait for the Federal Reserve (Fed) and the Bank of Japan (BoJ) interest rate decisions later this week.
US Economic Data and Its Impact
US Composite PMI and Other PMIs
Data released by S&P Global on Monday showed some changes in the US PMIs. The US Composite Purchasing Managers Index (PMI) rose to 56.6 in December’s flash estimate, compared to 54.9 before. The Services PMI also improved, going up to 58.5 in December’s flash estimate from 56.1. However, the Manufacturing PMI declined to 48.3 from 49.7.
Effect on the Greenback
Even with this mixed US economic data, the Greenback hasn’t been boosted. That’s because the markets have become cautious ahead of the key events like the Fed’s rate decision.
Fed’s Interest Rate Decision
The Fed will make its decision on interest rates on Wednesday. It’s widely expected to cut rates by 25 basis points (bps). According to the CME FedWatch tool, the markets are now almost fully pricing in a 25 bps cut at the Fed’s December meeting. This is quite different from about a 78% chance a week ago. Investors will closely watch Fed Chair Jerome Powell’s press conference and the Summary of Economic Projections (dot-plot) after the meeting.
BoJ’s Interest Rate Expectation
Likelihood of Rate Unchanged
The growing expectation is that the Bank of Japan (BoJ) will keep rates steady at its December meeting on Thursday. The markets are currently pricing in less than a 30% possibility of a rate hike in December.
Impact on Japanese Yen
This situation might weigh on the Japanese Yen (JPY). Several BoJ policymakers seem to be in no rush to tighten their monetary policy further. This is because there’s little risk of inflation overshooting despite Japan’s still near-zero borrowing costs.
Focus on US Retail Sales
On Tuesday, the US November Retail Sales will be published. Traders will be paying attention to this data release as they continue to assess the market situation ahead of the central bank decisions.
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