FOMC could test Tokyo’s JPY weakness appetite – MUFG
Source Fxstreet
The Japanese Yen (JPY) clearly underperformed on the back of the BoJ announcement. Economists at MUFG Bank analyze USD/JPY outlook ahead of the FOMC meeting.
FOMC communication will be key for JPY
The primary risk as we see it is that the FOMC drops a dot from its median dot profile of moves in the fed funds this year from three rate cuts to just two. That action alone would most likely lift yields and help support the Dollar. Still, the OIS market is not hugely out of kilter with that scenario at 20 bps of more cuts. So a bigger move for yields and the Dollar would likely come from not the change in the dots profile from three cuts to two but the communications from Fed Chair Powell that accompanies such a change.
We expect a reasonably balanced Fed communication, no matter what the median dots profile indicates for this year and that should help curtail further USD buying and weaken the current positive momentum (certainly the case of course if the dots profile is unchanged).
If we are incorrect on that, then FX could get interesting as a hawkish communication could see Tokyo’s resolve over limiting Yen depreciation being tested. A Tokyo holiday could exacerbate a move higher and a breach of the 2023 high is certainly feasible. A break of that high could well be accepted in Tokyo but we would still assume intervention would happen quite soon after that, especially with the BoJ’s action this week at least now consistent with Yen buying intervention.
Disclaimer: For information purposes only. Past performance is not indicative of future results.
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Bitcoin experienced a sharp decline this weekend, briefly erasing its 2025 gains and dipping below its year-opening value of $93,507. The cryptocurrency fell to a low of $93,029 on Sunday, representing a 25% drop from its all-time high in October. Although it has rebounded slightly to around $94,209, the pressures on the market remain significant.
The downturn occurred despite the reopening of the U.S. government on Thursday, which many had hoped would provide essential support for crypto markets. This year initially appeared promising for cryptocurrencies, particularly after the inauguration of President Donald Trump, who has established the most pro-crypto administration thus far. However, ongoing political tensions—including Trump's tariff strategies and the recent government shutdown, lasting a historic 43 days—have contributed to several rapid price pullbacks for Bitcoin throughout the year.
Market dynamics are also being influenced by Bitcoin whales—investors holding large amounts of Bitcoin—who have been offloading portions of their assets, consequently stalling price rallies even as positive regulatory developments emerge. Despite these sell-offs, analysts from Glassnode argue that this behavior aligns with typical patterns seen among long-term investors during the concluding stages of bull markets, suggesting it is not indicative of a mass exodus.
Notably, Bitcoin is not alone in its struggles, as Ethereum and Solana have also recorded declines of 7.95% and 28.3%, respectively, since the start of the year, while numerous altcoins have faced even steeper losses.
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