Japanese Yen refreshes daily low against USD amid US-China trade talks optimism, ahead of FOMC

The Japanese Yen (JPY) touches a fresh daily low against its American counterpart during the first half of the European session on Wednesday and lifts the USD/JPY pair closer to mid-143.00s in the last hour. The global risk sentiment gets a strong boost following the announcement of the US-China trade talks in Switzerland this week, which undermines traditional safe-haven assets, including the JPY.

However, expectations that the Bank of Japan (BoJ) may raise its outlook, depending on the outcome of US-Japan trade talks, and hike interest rates again amid signs of broadening inflation in Japan should act as a tailwind for the JPY. Apart from this, subdued US Dollar (USD) buying might contribute to capping the USD/JPY pair as traders keenly await the outcome of a two-day FOMC policy meeting.

Japanese Yen bears retain intraday control despite BoJ rate hike bets, lack of USD buying

• US Treasury Secretary Scott Bessent, along with US Trade Representative Jamieson Greer, will travel to Switzerland later this week for trade talks with Chinese Vice Premier He Lifeng. This comes after Bessent on Tuesday said the Trump administration could announce trade deals with some of the largest trade partners as early as this week and boost investors' confidence.
• This, in turn, is seen undermining demand for traditional safe-haven assets and exerting pressure on the Japanese Yen during the Asian session on Wednesday. The US Dollar, on the other hand, edges higher following a three-day losing streak amid some repositioning trade ahead of the crucial FOMC decision and lifts the USD/JPY pair back above the 143.00 mark.
• The Federal Reserve is expected to leave interest rates unchanged at the end of a two-day policy meeting. Hence, the market focus will be on the accompanying policy statement. Apart from this, Fed Chair Jerome Powell's comments at the post-meeting press conference will be scrutinized for cues about the future rate-cut path, which will drive the USD in the near term.
• Meanwhile, the Bank of Japan reiterated last week that it remains committed to raising rates further if the economy and prices move in line with its forecasts. Moreover, expectations that sustained wage hikes will boost consumer spending and inflation in Japan keep the door open for further policy normalization by the BoJ and interest rate hikes by the end of this year.
• Meanwhile, a Kremlin spokesman warned that an appropriate response will be given immediately if Ukraine does not halt the fire. Adding to this, Israel's security Cabinet unanimously approved a plan to widen the military offensive in Gaza and gradually seize control of the territory. This keeps geopolitical risks in play and should limit deeper JPY losses.

USD/JPY might struggle to surpass next relevant barrier near 143.55-143.60 supply zone

From a technical perspective, last week's failure near the 200-period Simple Moving Average (SMA) on the 4-hour chart and the subsequent downfall favor bearish traders. Moreover, oscillators on daily/hourly charts are holding in negative territory, suggesting that the path of least resistance for the USD/JPY pair remains to the downside. Hence, any further move up might still be seen as a selling opportunity near the 143.55-143.60 region. This, in turn, should cap spot prices near the 144.00 mark. This is followed by the 144.25-144.30 supply zone, which, if cleared decisively, might trigger a short-covering rally and lift spot prices to the 145.00 psychological mark.

On the flip side, the 142.35 area, or the weekly low, now seems to protect the immediate downside for the USD/JPY pair ahead of the 142.00 mark. A convincing break below the latter could make spot prices vulnerable to accelerate the fall further towards the next relevant support near the 141.60-141.55 region en route to the 141.00 round figure.