Dollar cedes to yen ahead of Fed decision

The US dollar fell against the Japanese yen on Wednesday in Asian trading, as investors awaited the Federal Reserve’s decision on interest rates later in the day.

The yen gained 0.3% to 134.85 per dollar, extending its recovery from a 24-year low of 139.39 set last week. The dollar index, which measures the greenback’s strength against a basket of six major currencies, fell 0.2% to 104.60.

The Fed is widely expected to raise interest rates by 50 basis points at its meeting later today, which would be the largest increase since 2000. However, investors are also looking for clues on the Fed’s future policy path, particularly in light of recent signs of slowing inflation.

Some analysts believe that the Fed could signal a more dovish stance, which would weigh on the dollar. “The market is pricing in a 50 basis point hike, but the question is whether the Fed will sound more hawkish or dovish,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities. “If the Fed sounds more dovish, the dollar could weaken further.”

Others believe that the Fed will maintain a hawkish stance, which would support the dollar. “The Fed is still far behind the curve, and it needs to do more to bring inflation under control,” said Sean Callow, senior currency strategist at Westpac. “We expect the Fed to sound hawkish, which should support the dollar.”

The dollar’s direction will also be influenced by the Bank of Japan’s (BOJ) decision on interest rates later this week. The BOJ is widely expected to keep interest rates on hold, but investors will be watching for any signs of a change in policy.

“The BOJ is under increasing pressure to tighten policy, but it is also mindful of the risks to the economy,” said Daisuke Karakama, chief market economist at Mizuho Bank. “We expect the BOJ to keep interest rates on hold for now, but it could signal a willingness to tighten policy in the future.”

The dollar’s movement against the yen will be closely watched in the coming days, as it could provide clues on the direction of the global currency markets.