USD/JPY: Sliding Yen Evokes Fears of ‘Widow Maker’ Trade as Bank of Japan Decides on Rates

US dollar advanced on Friday and early Monday, floating near ¥149.00 while traders started holding their breath ahead of BoJ’s two-day policy meeting.

Key Points:

• Yen drops beyond ¥149.00 to the US dollar.
• Bank of Japan meets Monday and Tuesday.
• Rumors of interest rate hike run rampant.
• The USDJPY pair kicked off this week’s trading on an upbeat note in favor of the US dollar as markets brace for a monumental event. Forex traders will be on the edge of their seats on Monday and Tuesday when the Bank of Japan meets to decide the fate of interest rates. In previous comments, central bank officials have hinted the time to raise rates is fast approaching.
• If Japan chooses to move away from the world’s only negative interest rate regime, this would end the country’s eight-year experiment of rates under the flatline. And, more importantly, it will be the first uptick in interest rates since 2006. What does all this mean for the Japanese yen and what can you expect this week? Volatility, for one, especially if there are surprises that could send traders scrambling.
• The Bank of Japan hasn’t explicitly said it will hike rates this week. Some analysts, including UBS, expect Japan’s policymakers to skip this meeting and hike in April. Others, such as Goldman Sachs, expect to see a rate hike. In any case, don’t bet your life savings on trying to outsmart Japan’s central bank. There’s a reason why betting against the Bank of Japan goes by the name “widow maker.”