Japanese Yen struggles to lure buyers; looks to BoJ policy update for fresh impetus

• The Japanese Yen weakens below the 145.00 mark against a mildly positive USD on Tuesday.
• Rising geopolitical tensions limit losses for the safe-haven JPY ahead of the BoJ policy decision.
• The BoJ is expected to leave interest rates unchanged and reduce its bond purchases next year.

The Japanese Yen (JPY) remains on the back foot against its American counterpart for the third consecutive day on Tuesday amid expectations that the Bank of Japan (BoJ) could postpone the rate hike to Q1 next year due to uncertainty over US tariff policy. This, along with a modest US Dollar (USD) uptick, lifts the USD/JPY pair beyond the 145.00 psychological mark during the Asian session. The JPY bears, however, might refrain from placing aggressive bets ahead of the crucial BoJ policy decision, which will be looked upon for more cues about the central bank’s policy outlook.

Investors this week will further take cues from the outcome of a two-day FOMC monetary policy meeting on Wednesday, which will play a key role in influencing the USD price dynamics and provide a fresh impetus to the USD/JPY pair. Heading into the key central bank event risks, rising geopolitical tensions in the Middle East might help limit deeper losses for the safe-haven JPY. Adding to this, the growing acceptance that the US Federal Reserve (Fed) will lower borrowing costs further in 2025 could act as a headwind for the USD and cap the upside for the USD/JPY pair.

Japanese Yen bulls remain on the defensive ahead of the BoJ policy decision

• The Japanese Yen weakened below the 145.00 mark against the US Dollar amid expectations that the Bank of Japan might forego another rate hike this year amid trade uncertainties. Japan’s Prime Minister Shigeru Ishiba and US President Donald Trump failed to achieve a breakthrough on tariffs at the Group of Seven summit.
• Ishiba wants Trump to eliminate 25% duties on Japanese vehicles and 24% reciprocal levies on other Japanese imports, which have been suspended until July 9.“There are still some points on which the two sides are not on the same page, so we have not yet reached an agreement on the trade package,” Ishiba told reporters.
• Meanwhile, Japan’s Finance Minister Katsunobu Kato said that there is no fixed plan right now to hold further talks with US Treasury Secretary Scott Bessent. Kato further added that higher oil prices and a lower JPY are not a favorable combination for the Japanese economy as the country is a very large importer of energy.
• The Bank of Japan will announce its policy decision later today and is widely expected to maintain short-term interest rates at 0.5%. Furthermore, BoJ Governor Kazuo Ueda is likely to signal readiness to continue interest rate hikes as the escalating Iran-Israel conflict could boost crude oil prices and disturb the price outlook.
• The market focus will also be on the board’s review of an existing bond-tapering plan running through the end of the current fiscal year, and a new program that will extend through fiscal 2026. The BoJ will consider slowing reductions in its bond purchases next year under a quantitative tightening (QT) plan.
• On the geopolitical front, the deadly conflict between Israel and Iran has entered its fifth day, with both sides widening their attacks. Trump, in a Truth Social post, warned Iranians to “immediately evacuate Tehran”. A White House official said that the post reflected the urgency of the need for Iran to come to the table for talks.
• Investors this week will further evaluate the Federal Reserve’s latest monetary policy update for more cues about the future rate-cut path. This, in turn, will help in determining the next leg of a directional move for the US Dollar and the USD/JPY pair.

USD/JPY needs to find acceptance above 145.00 to back the case for further appreciation

From a technical perspective, sustained strength and acceptance above the 145.00 psychological mark will confirm a bullish breakout through a multi-week-old trading range. Given that oscillators on the daily chart have just started gaining positive traction, the USD/JPY pair might then surpass the monthly swing high, around the 145.45 region, and aim to conquer the 146.00 round figure. The momentum could extend further towards the 146.25-146.30 region, or the May 29 peak. 

On the flip side, any corrective slide now seems to find some support near the 144.50-144.45 region ahead of the 144.00 mark. A convincing break below the latter could drag the USD/JPY pair to the 143.55-143.50 intermediate support en route to the 143.00 round figure and last Friday’s swing low, around the 142.80-142.75 region. This is followed by the lower boundary of the trading range, around mid-142.00s, which if broken would set the stage for the resumption of the downtrend from the May monthly swing high.