Fed Outlook And Dollar Strength
Powell said tariff-related inflation may take more time to improve. He also said the economy is doing pretty well, and that the effects of the Middle East conflict are unknown. The Fed decision had one dissenter, Governor Stephen Miran. The Fed’s projections show one 25-basis-point rate cut in 2026 and one in 2027. US growth is forecast at 2.4% in 2026 and 2.3% the year after. Inflation is projected to rise from 2.4% to 2.7%, while underlying prices are seen at 2.7%, up from 2.5%. Japan’s calendar includes Industrial Production data and the Bank of Japan policy decision on Thursday, with rates expected to stay unchanged. The timing was corrected on March 18 at 21:16.BoJ Watch And Trade Setup
Technical levels cited include support at 159.00, then 156.50 and 154.50, with resistance near 160.50 and 161.50. RSI was 67, with an uptrend supported from 152.10. Based on yesterday’s events, the Federal Reserve has signaled a stronger US dollar for the foreseeable future. They are now projecting only one interest rate cut for 2026, which is a major shift that supports a higher USD/JPY exchange rate. This hawkish stance means the interest rate difference between the US and Japan will remain wide. We should position for continued yen weakness against the dollar. The recent US inflation data for February 2026 came in at a stubborn 3.4%, giving the Fed little reason to soften its stance. This has pushed the US 10-year Treasury yield up to 4.8%, widening the gap with Japan’s 10-year bond, which sits at just 1.1%. The focus now shifts to the Bank of Japan’s decision later today, though we anticipate they will hold rates steady. Looking back at their slow pace of policy normalization throughout 2025, a surprise hawkish move seems unlikely. Any confirmation of their cautious stance will likely add more fuel to the USD/JPY rally. For derivatives, buying USD/JPY call options for the coming weeks seems like a clear strategy. We are targeting the resistance levels of 160.50 and then 161.50 as potential take-profit zones. However, we must be mindful that the last time we saw these levels back in 2024, Japanese authorities intervened, so we will manage risk accordingly. Create your live VT Markets account and start trading now.
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