Tokyo CPI and BoJ Decision Round Off Central Bank Week for the Yen

• Trading just below 158.00, USD/JPY has recovered most of its losses from 22-23 October.
• Most Fed officials do not regard the economy as overheating, according to Fed Chair Warsh.
• Ahead of Friday's BoJ decision, traders put the probability of rates remaining at 1.25% at close to 86%.

The Fed's decision to leave rates unchanged did not deepen USD/JPY's decline of 22-23 October, most of which has now been recovered. Ahead of the announcement, the pair traded above 158.00, reaching its session peak just below 158.50 as Fed Chair Warsh began his press conference. It has since eased back to just below 158.00, remaining above a session trough slightly above 157.50.

With the Fed leaving rates at 3.75%-4.00%, compared with 1.25% at the Bank of Japan (BoJ), USD/JPY surrendered its gains above 158.00 during Warsh's answers. The Fed Chair said that most officials did not see the US economy as overheating and that stronger growth alone did not imply higher inflation.

A worldwide sell-off in technology shares accompanied USD/JPY's fall on 22-23 October, as investors repurchased the Yen they had borrowed. The pair subsequently recovered alongside a rebound in semiconductor shares on Monday and Tuesday. Compared with Monday's recovery in chip stocks, Wednesday's Fed announcement and press conference prompted a narrower trading range in USD/JPY.

US and Japanese Releases Put the Rate Gap in Focus

US third-quarter growth figures and September price data, due on Thursday at 12:30 GMT, will inform the Fed side of USD/JPY's interest-rate differential. At 23:30 GMT, attention turns to Tokyo's October Consumer Price Index (CPI): the measure excluding fresh food is forecast to ease to 2.6% from 2.7%. Japan's unemployment rate is expected to remain at 2.5%.

Friday brings the BoJ's policy decision, for which no release time is fixed, followed by its quarterly outlook report at 03:00 GMT and questions to BoJ Governor Ueda at 06:30 GMT. With markets assigning close to an 86% probability to unchanged rates, these events will bear on when the next increase comes, shaping the BoJ side of the rate differential.

USD/JPY Trades Between Its Key Moving Averages

Around a fifth of a yen separates the 50-day and 200-day Exponential Moving Averages (EMA), with USD/JPY currently between the two. The pair's trading range since 1 October extends from slightly above 156.00 to just below 159.00. The low recorded on 23 October marks the bottom of that period's range.

Daily USD/JPY Chart