If the Grinch Takes a Stock Rally, Can Santa Rally FX?

As the Federal Reserve started their end of the year meeting on Tuesday, the stock market produced a slight drop due to speculative fears of a taper of QE3.  The long awaited news of a potential taper will be announced today, concluding the Fed's meeting.

What to expect from the taper?
We can expect to see risk-on-risk-off trading. Investors will start to liquidate riskier assets such as equities and risk driven currencies causing them to depreciate. Investors will want gravitate towards lower risk investments and currencies such as the US Dollar. The result is a bearish correction in the equities market, with a surge of demand towards safe-haven assets and currencies such as the US Dollar.

Looking at the daily chart below we can see how the US Dollar began appreciating due to mentions of a taper in mid October.

US Dollar Index
Daily Chart

Forex Outlook
If we analyze the current and future monetary policies of both the United States and Japan, we will see that the policies are taking two opposite directions. The Federal Reserve is looking to cut down on it's stimulus package, decreasing the purchases of mortgage securities and treasury bonds, while the Bank of Japan is try to boost growth through increasing their stimulus buyback programs.
After looking at the different directions the policies are taking, we can now conclude that the currencies shall react in a similar manner. As our Federal Reserve cuts down on money flow into the economy, the US Dollar will be higher in demand, therefore increase in value. As more of the Japanese Yen flows into their economy, the demand for the currency shall decrease, therefore depreciating the currency.

Below we can see how the two differing policies affecting the currency pair price. The most recent rally began in October with just talks of a taper. If the Fed decides on implementing a taper we can expect a continuation of this rally.

USD/JPY
Daily Chart