BUZZ-COMMENT-USD/JPY 137-140 affirmed into BOJ, maybe FOMC

July 20 (Reuters) – USD/JPY is likely to trade a 137-140 range into the BoJ policy announcement on Thursday and maybe into the FOMC policy announcement on July 27. Short-run trading parameters may have been defined already after the topside rejection at 139.38 on July 14 and the downside rejection at 137.38 July 19.

No change in BoJ policy is almost a given nL1N2YW096 whereas the size of a Fed hike remains a matter of debate. Concerns over a possible recession prompted by recently weaker U.S. economic data nL1N2YZ1HE nL1N2YW0ZO and stock market moves has seen some shift in Fed expectations. From a hike of 75-100 bps, some now see 75 bp or even 50 bp nW1N2X9040

The FX markets have reacted accordingly, with EUR and GBP rallying from recent lows and USD/JPY reacting by retracing lower. USD/JPY retracements have been rather shallow, with most still seeing wider Japan-U.S. interest rate differentials going forward.

Tokyo players suggest a base in the vicinity of 137.00 now. An outlier down towards 136.00 is not ruled out but will likely be bought aggressively by Japanese importers and carry-trade players.

The upside looks to be capped well ahead of 140.00 with U.S. yields holding well below recent highs and FOMC intentions still up in the air.

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(Haruya Ida is a Reuters market analyst. The views expressed are his own)

((haruya.ida@thomsonreuters.com;))