USD/JPY Fundamental Daily Forecast – Line in the Sand for Traders is 110.868

The Dollar/Yen is trading nearly flat shortly before the U.S. opening and well ahead of the Bank of Japan’s monetary policy decision due to be released early Tuesday. Prices could remain rangebound for a second day with most major players sitting on the sidelines.

At 0946 GMT, the USD/JPY is trading 111.056, up 0.042 or 0.04%.

In addition to the BOJ decision, investors are also looking forward to the start of the U.S. Federal Reserve’s two-day meeting on Tuesday and the release of its monetary policy statement on Wednesday. Traders are also prepping for a slew of U.S. economic data later this week.

Forecast

We’re expecting the USD/JPY to remain in a tight range throughout the session on Monday as market participants await the key central bank meetings on Tuesday and Wednesday that could set the near-term course for currencies.

With U.S. Treasury yields trending higher and the Fed widely expected to maintain its hawkish stance this week, financial market traders are likely to focus more of their attention on whether the BOJ is considering taking steps to make its massive stimulus program more sustainable.

Last week, the U.S. Dollar eased back from a six-month high above 113.00 yen on speculation the BOJ might adjust its yield curve control and exchange-traded fund buying schemes.

After initially selling off hard in reaction to a rapid rise in Japanese bond yields, the USD/JPY stabilized when U.S. Treasury bond yields rose sharply on renewed speculation the BOJ will stand pat on monetary policy.

Therefore, the focal point for investors on Tuesday will be whether the BOJ hints at future policy change.

However, this task will be difficult because opinions about potential actions vary greatly. This means that the outcome of the meeting could trigger a volatile reaction no matter what the outcome is.

The price action the last six trading sessions clearly shows that the line in the sand for investors is a technical retracement level at 110.868.

A dovish BOJ could set the USD/JPY screaming into 111.899 to 112.208, while a hawkish BOJ could trigger a steep retreat to 109.673.