USD/JPY climbs to over one-week top, above mid-148.00s ahead of FOMC/BoJ meetings

USD/JPY climbs to a nearly two-week top and draws support from a combination of factors.
The trade optimism and reduced BoJ rate hike bets continue to undermine the safe-haven JP.
The USD preserves Monday’s strong gains and further acts as a tailwind for the currency pair.

Haresh Menghani FXStreet

The USD/JPY pair attracts buyers for the fourth consecutive day and climbs to a one-and-a-half-week high, around the 148.70 area during the Asian session on Tuesday. Traders, however, refrain from placing fresh bullish bets and opt to move to the sidelines ahead of this week's key central bank event risks.

The US Federal Reserve (Fed) is scheduled to announce its decision at the end of a two-day meeting on Wednesday, and will be followed by the Bank of Japan (BoJ) policy update on Thursday. Investors will look for cues about the central bank's policy outlook, which, in turn, will play a key role in determining the next leg of a directional move for the USD/JPY pair.

In the meantime, the recent positive trade-related developments continue to undermine traditional safe-haven assets, including the Japanese Yen (JPY). Adding to this, diminishing odds for an immediate interest rate hike by the Bank of Japan (BoJ), amid cooling inflation in Japan and domestic political uncertainty, further weigh on the JPY and support the USD/JPY pair.

The US Dollar (USD), on the other hand, looks to build on the previous day's blowout rally amid the growing acceptance that the Fed will keep interest rates steady this week. This turns out to be another factor acting as a tailwind for the USD/JPY pair, though the lack of strong follow-through buying warrants some caution before positioning for a further appreciating move.

Traders now look forward to Tuesday's US economic docket – featuring the release of JOLTS Job Openings and the Conference Board's Consumer Confidence Index. The data might influence the USD price dynamics and provide some impetus to the USD/JPY pair later during the North American session. The immediate market reaction, however, is likely to be limited.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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