USD/JPY, AUD/USD flows: 2 down with no big surprises, FOMC the bigger focus

Overnight generally sees the Fri-Mon dollar bounce backing off somewhat, with focus turning to the FOMC as the next major dollar factor, and with risk markets generally taking a breather.

USD/JPY left pretty much unmoved by a BoJ outcome that was very much in line with expectations with the 25bp hike, and continuing as is this fiscal year before ending tapering from April, again as sources had suggested - although a ‘sell the fact' bounce in long end JGB yields suggest perhaps some disappointment.

The statement also didn’t particularly surprise by dropping the reference to rates being ‘significantly low’ while retaining the tightening bias and guidance skew (‘will continue to raise rates and adjust the degree of monetary accommodation in response to developments in economic activity, prices and financial conditions’). It is worth nothing though that the wider statement does note ‘real interest rates have been negative, mainly in the short- to medium-term zone. Firms' and other entities' demand for funds has increased’. So that still highlights the BoJ’s focus on the policy rate being relatively low, and may need further increases, if long as long end yields are controlled.

That currently leaves the pair for now needing to get impetus from either the FOMC side of the equation, risk tone, or MoF (some speculation they may be more in the picture in the event of any fresh upside now that the BoJ is out the way).

The RBA’s data dependent hold was not a great surprise either, albeit with the tone overall holding a slightly hawkish skew on inflation risks and possibility of more action needed. That though is o be expected (especially not wanting to inadvertently signal a shift in stance) and it was clear that they didn’t discuss hikes and were waiting on more months of data to see if any substance to some of the recent softer prints. AUD/USD settling back to 0.7050~ support with a bit of backfilling.