Japanese Yen remains depressed near weekly low against USD as bulls await BoJ decision

The Japanese Yen (JPY) remains on the back foot against its American counterpart for the second straight day and pushes the USD/JPY pair to the 156.00 neighborhood, or the top end of the weekly range, during the early European session on Thursday. Concerns about Japan's worsening fiscal health, along with some repositioning trade ahead of the key central bank event risk, turn out to be key factors undermining the JPY. However, the growing acceptance that the BoJ will hike interest rates on Friday and a weaker risk tone could help limit losses for the safe-haven JPY.

The JPY bears might refrain from placing aggressive bets and opt to wait for more cues about the BoJ's future policy path. Hence, the focus will be on BoJ Governor Kazuo Ueda's post-meeting press conference. In the meantime, firming expectations for more interest rate cuts by the US Federal Reserve (Fed) keep a lid on the attempted US Dollar (USD) recovery and might act as a headwind for the USD/JPY pair. Furthermore, the divergent BoJ-Fed policy outlooks warrant some caution before positioning for any meaningful depreciation of the lower-yielding JPY.

Japanese Yen is pressured by some repositioning trade ahead of the BoJ event risk

• Traders turn cautious and refrain from placing aggressive directional bets around the Japanese Yen ahead of the start of a two-day Bank of Japan meeting this Thursday. The central bank will announce its policy decision on Friday and is widely expected to hike interest rates to 0.75%, or a three-decade high.
• Furthermore, recent reports suggest that the BoJ would likely maintain a pledge to keep raising interest rates, but stress that the pace will depend on how the economy reacts to each hike. Hence, comments from BoJ Governor Kazuo Ueda will be looked for cues about how far the central bank could raise rates.
• Investors have been selling shorter-dated Japanese government bonds amid hawkish BoJ expectations. Adding to this, reports on the size of government spending next year fueled worries about Japan's worsening fiscal health and lifted the yield on the benchmark 10-year JGB to its highest level since June 2007.
• The resultant narrowing of the yield differential between Japan and other major economies acts as a tailwind for the Japanese Yen during the Asian session on Thursday. The US Dollar, on the other hand, preserves the overnight recovery gains and supports the USD/JPY pair heading into the key central bank event.
• The upside for the USD, however, seems limited amid dovish Federal Reserve expectations. Traders have been pricing in the possibility of two more rate cuts by the US central bank in 2026. Apart from this, speculations that the new Trump-aligned Fed chair will be dovish keep a lid on any meaningful USD appreciation.
• Traders also seem reluctant to place aggressive bets and opt to wait for the release of the latest US consumer inflation figures, due later during the North American session. The crucial data will be looked for more cues about the Fed's rate-cut path, which should provide some impetus to the USD and the USD/JPY pair.

USD/JPY bulls might await sustained move beyond 156.00 before placing fresh bets

The overnight breakout through the 100-hour Simple Moving Average (SMA), along with positive oscillators on hourly and daily charts, backs the case for a further move up for the USD/JPY pair. However, it will still be prudent to wait for a sustained strength beyond the weekly high, around the 156.00 mark, before placing fresh bullish bets. Spot prices might then extend the positive momentum towards the monthly high, around the 157.00 neighborhood, touched last week, with some intermediate hurdle near the 156.55-156.60 region.

On the flip side, the 100-hour SMA resistance-turned-support, currently around the 155.30 zone, could protect the immediate downside ahead of the 155.00 psychological mark. A convincing break below the latter might prompt some technical selling and expose the 154.35-154.30 region, or the monthly swing low touched on December 5. This is followed by the 154.00 mark, which, if broken, will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.