GemForex - USD/JPY

With the Federal Reserve expected to raise interest rates for the third time this year, the U.S. dollar is hovering near multi-year and in the case of USD/JPY, multi-decade highs.

A half-point increase has been completely discounted and in the last 24 hours, expectations for a 75bp hike soared to 96% according to the CMEs FedWatch tool. 

The USD/JPY pair has faced some offers while overstepping the critical resistance of 134.40 in the Asian session. The asset is oscillating in a narrow range of 133.59-134.66 after forming a fresh two-decade high at 135.16. A volatility contraction is expected in the major going forward amid crucial events ahead. 

The yen pair‘s latest weakness could be further linked to upbeat Japanese data and a pullback in the US Treasury yields, as well as the market’s preparations for the Federal Open Market Committee (FOMC).

The yen is at risk of weakening further against the dollar for at least the rest of 2022, more than two-thirds of economists polled, underscoring the consequences of the Bank of Japan being the lone major central bank clinging to easy policy.

That said, USD/JPY traders may pay attention to the risk catalysts, to determine immediate moves. The yen is sensing resistance around 134.40 as DXY is facing correction after a long rally.