USD/JPY Remains Near 123.50 on Fed

The safe-haven yen held firm in early trade on Tuesday, as investors remained cautious ahead of a two-day U.S. Federal Reserve meeting beginning later this session.  Markets were also skittish in the wake of a plunge in Chinese equity markets in the previous session, which helped the Japanese currency climb to a nearly two-week high.

The dollar was nearly flat on the day at 123.260 yen after falling as low as 123.010 yen JPY=EBS in the previous session, while the euro was buying 136.71 yen EURJPY=EBS, after rising as high as 137.10.  Shanghai stocks tumbled 8.5 percent on Monday, their biggest drop in eight years, which helped pull down European and U.S. share markets.

Some investors believe the Fed’s rate-setting Open Market Committee could begin hiking rates as early as September, which has underpinned the dollar in recent weeks.  “We think FOMC will surprise on the hawkish side, provided a highly conditional lean to a 2015 lift-off is viewed as hawkish,” Steven Englander, global head of G10 FX strategy at CitiFX in New York, wrote in a note to clients.