USD/JPY climbs cautiously ahead of BoJ meeting

On early Thursday, dollar bulls tested the USD/JPY market, but their excitement quickly faded. This cautious attitude reflects the nervousness of investors as they anxiously await the Bank of Japan’s policy announcement. The US Federal Reserve’s hawkish turn eclipsed the less-than-expected US inflation numbers, giving the dollar a little boost.

Due to the imminent BoJ meeting on Friday, traders are remaining cautious and waiting to place large wagers until they know the central bank’s decision. Thursday’s Asian trade saw a little increase in the USD/JPY pair as it looked to build on its recovery from Wednesday’s multi-day low, which was caused by dismal US inflation data.

Spot prices, however, are locked in the 156.75–156.80 range and lack significant positive momentum as focus turns to the BoJ’s policy meeting. The Fed’s surprising turn towards hawkishness, with policymakers now projecting only one rate drop in 2024 as opposed to three, is boosting the USD/JPY pair and giving the currency a boost.

The Fed’s lower inflation projections have led them to conclude that this year’s rate cuts won’t be as necessary. The US Consumer Price Index (CPI) numbers, which declined marginally year over year from 3.4% in April to 3.3% in May and remained flat for the first time since last June, are overshadowed by this shift in position.

Excluding volatile food and energy costs, the core CPI likewise dropped to a more than three-year low of 3.4%, surpassing predictions of 3.5% and down from 3.6% in April.

Investor caution is being maintained despite the Fed’s projections favouring a stronger USD and perhaps pushing USD/JPY higher due to uncertainty around the BoJ’s plan to reduce bond purchases in a dismal economic environment.

The main focus is still on what will happen during the much awaited two-day BoJ meeting on Friday. For short-term trading chances during the early North American session, traders will be watching Thursday’s US economic data releases, particularly the Producer Price Index (PPI) and weekly unemployment claims. The USD/JPY pair may be impacted by broader risk sentiment, which might affect demand for the safe-haven JPY.