USD/JPY extends its recovery above 154.70 with central banks on focus

• The Dollar appreciates against the Yen unfazed by the diverging Fed/BoJ policy outlook.
• The BoJ is expected to launch an aggressive quantitative tightening program on Wednesday.
• USD/JPY has breached 154.80 and might extend beyond 155.35 to the 155.75 area. 

The USD/JPY seems to ignore the diverging policy outlook of its respective central banks and is gaining bullish traction, ahead of BoJ and Fed’s monetary policy decisions, on Wednesday.

Fed and BoJ are about to advance on diverging paths

The Federal Reserve is widely expected to leave its benchmark interest rate unchanged, although recent data has boosted hopes that they might anticipate their easing cycle. The market is fully pricing a rate cut in September, and Chair Powell’s comments will be analyzed with interest for hints on that direction.

Later today, the US JOLTS job opening and the Conference Board’s Consumer Sentiment Index are expected to add to the evidence of softer US economic growth in the second quarter.

The BoJ, on the other hand, is in an antithetical situation. The Bank will disclose a significant reduction of its massive bond purchasing program and probably accompany it with a 10 bp rate hike.

USD/JPY has gained bullish momentum above 154.70

Technically speaking, the pair is gaining momentum after breaching Friday’s high, at 154.70 with bulls aiming for the resistance area between the 4H 50 SMA, now at 155.35, and the 38.6% Fibonacci retracement of July’s reversal, at 155.75. Supports are 153.00 and 151.90.