USD/JPY breaks above 143.50, focus shifts to BoJ rate decision

• USD/JPY climbs to 143.55 in the Asian session on Thursday, up 0.90% on the day.
• The Fed cut interest rates for the first time in more than four years, with a bigger cut than usual.
• The BoJ is expected to take note at its policy meeting on Friday.

USD/JPY is gaining traction around 143.55 during the early European session on Thursday. The major pair’s rally is supported by the recovery of the US dollar (USD). Investors will turn their attention to the Bank of Japan’s (BoJ) interest rate decision on Friday.

The Federal Reserve (Fed) cut interest rates by 50 basis points (bps) to 4.75%-5.00% at its September meeting on Wednesday. Fed Chairman Jerome Powell said during the news conference that the move was “strong” but necessary as price increases ease and labor market concerns grow.

Fed policymakers cut their 2024 GDP growth forecast to 2 percent, down from a previous projection of 2.1 percent. Fed officials raised their projection for the long-term federal funds rate to 2.9 percent from 2.8 percent. The greenback oscillated between gains and losses after the Fed decision.

Meanwhile, the USD Index (DXY), a measure of the USD’s value against most of its major trading partners, is back at multi-month lows and reclaiming the 101.00 barrier, gaining 0.20% on the day. However, the accommodative stance of the US Fed and the expectation of further interest rate cuts this year could weigh on the USD and limit the upside for the pair.

On the other hand, the BoJ is expected to keep interest rates on hold at its two-day meeting ending Friday. However, most economists polled by Reuters expect an increase by the end of the year. Since the Fed began its monetary policy easing at its September meeting, a narrowing spread between US and Japanese interest rates could lift the Japanese yen (JPY) against the USD.