USD/JPY climbs as Yen slips on cautious BoJ, steady DXY

The Japanese Yen (JPY) weakens against the US Dollar (USD) on Wednesday, halting a two-day winning streak as the Greenback finds footing. A stabilizing US Dollar Index (DXY) and cautious sentiment following the Bank of Japan’s (BoJ) latest policy commentary weighed on the Yen.

The USD/JPY pair is recovering steadily, currently trading near 145.75 in the American hours and up 0.45% on Wednesday. The pair found a solid floor around 144.61 earlier in the session, coinciding with support from the 21-day Exponential Moving Average (EMA), which helped fuel the latest rebound.

Meanwhile, the US Dollar Index (DXY), which measures the Greenback’s performance against a basket of six major currencies, is hovering near the 98.00 mark on Wednesday, stabilizing after testing three-year lows the previous day. The pause in downside momentum comes as investors continue to evaluate the Federal Reserve’s (Fed) policy outlook, with Fed Chair Jerome Powell appearing before the Senate for a second day of Congressional testimony and maintaining a cautious stance on rate adjustments.

On the Japanese front, the Bank of Japan’s Summary of Opinions from its June monetary policy meeting, released earlier in the day, highlighted a growing rift among board members over the timing and scale of future rate hikes. While a few policymakers argued for maintaining the current policy stance amid external uncertainties and sluggish domestic growth, others flagged persistent inflationary pressure and strong wage gains as reasons to consider additional tightening. The mixed signals have kept markets guessing, with no clear indication on when the BoJ might move next.

Policymakers emphasized that any rate hikes would hinge on the materialization of their economic and price outlook. While inflation has slightly exceeded expectations, the BoJ noted that economic growth is likely to slow, and consumer price improvements may remain sluggish. Amid external risks such as global trade tensions and geopolitical instability, the board broadly agreed that maintaining the current accommodative stance remains appropriate for now, adding to the downward pressure on the Yen.

Adding to the mix, BoJ board member Naoki Tamura offered a more hawkish perspective, suggesting the central bank should consider raising interest rates without delay. Speaking in Fukushima, Tamura said there is a “good possibility” that the BoJ’s 2% inflation target could be met earlier than anticipated. He underscored the need for timely and appropriate policy action based on data trends and warned that inflation could rise faster than current forecasts, potentially requiring decisive tightening, even amid global uncertainties.

Looking ahead, market focus will remain on Federal Reserve (Fed) Chair Jerome Powell’s testimony for further policy clues. Attention will then shift to the second estimate of US Q1 GDP, due on Thursday, followed by key inflation readings on Friday, including the Tokyo Consumer Price Index (CPI) and the Fed’s preferred inflation gauge — Core PCE. These data points could provide fresh direction for USD/JPY amid lingering policy divergence between the Fed and the BoJ.