USD/JPY Edges lower for second day as traders brace for Fed and BoJ
Japanese Yen steadies near 158.90 as a central bank double-header looms large this week.The Fed is widely expected to hold rates at 3.75% at Wednesday's meeting, with traders focused on updated dot plot projections.The BoJ is forecast to hold at 0.75% on Thursday; elevated energy prices tied to the Strait of Hormuz disruption are expected to feature in the central bank's economic assessment.USD/JPY fell less than 0.1% on Tuesday, settling close to 158.90 in a narrow, directionless session. It was the second consecutive day of losses from last week's year-to-date high around 159.75, with a small-bodied candle reflecting the market's reluctance to push through the 160.00 level ahead of back-to-back central bank decisions.
The Federal Reserve (Fed) is all but certain to hold its policy rate at 3.75% on Wednesday, with markets pricing near-zero odds of a move. Attention will fall on the updated Summary of Economic Projections (SEP) and Chair Jerome Powell's press conference, where any shift in the median 2026 cut projection could jolt the US Dollar. With just 22 basis points of cuts now priced across the full year, even a marginally dovish tilt in the dot plot would carry significant weight.
The Bank of Japan (BoJ) follows on Thursday, with its policy rate also expected to hold at 0.75%. The central bank is likely to flag elevated energy prices tied to the Strait of Hormuz closure as a downside risk to Japan's growth outlook, potentially clouding the case for near-term tightening. Prime Minister Sanae Takaichi's pro-stimulus stance continues to complicate the BoJ's room to move, even as core inflation holds above target and wage growth remains firm.
USD/JPY daily chartIn the daily chart, USD/JPY trades at 158.93. The near-term bias is bullish as spot holds well above the rising 50-day EMA near 156.50 and the 200-day EMA just below 152.70, confirming an intact medium-term uptrend. Price action has recovered swiftly from the early-month dip toward 152.70, and the pair is consolidating just under last week’s highs, keeping dip-buying interest in control. The Stochastic oscillator remains deep in overbought territory above 90, flagging strong upside momentum but also warning that upside extensions risk exhaustion if fresh highs fail to attract follow-through demand.
Initial support emerges at 158.00, where minor recent congestion aligns with the short-term trend structure, followed by the 50-day EMA around 156.50 as a more important downside pivot. A break below that area would expose the 154.30 region as the next support zone and then the 200-day EMA near 152.70. On the upside, immediate resistance stands at 159.50, just ahead of the recent peak near 159.75; a daily close above this band would open the way toward the 160.50 region. As long as the pair holds above 156.50, pullbacks are likely to be treated as corrections within the prevailing bullish trend.
(The technical analysis of this story was written with the help of an AI tool.)
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.
