Japanese Yen Trades Sideways as Markets Brace for BoJ Rate Decision

Yen Lacks Direction Ahead of Key Policy Event

The Japanese Yen (JPY) moved within a tight range against the US Dollar during Thursday’s Asian session, as traders remained cautious ahead of the Bank of Japan’s (BoJ) interest rate decision due on Friday. Conflicting fundamental signals kept market participants on the sidelines, limiting any decisive move in the currency.


Risk-On Mood Undermines Safe-Haven Appeal

Global risk sentiment improved after US President Donald Trump softened his stance on Greenland-related tariffs, boosting equities and reducing demand for traditional safe havens such as the Yen. The shift in tone weighed on the JPY, which typically benefits during periods of heightened uncertainty.


Fiscal Concerns Pressure the Yen

Adding to the downside pressure, Japan’s bond market has been rattled by concerns over the country’s fiscal outlook under Prime Minister Sanae Takaichi’s expansionary policies. A sharp selloff in government bonds earlier this week pushed long-term yields to record highs, further discouraging Yen bulls from taking aggressive positions.


BoJ Expectations Offer Partial Support

Despite these headwinds, expectations that Japanese authorities may step in to curb excessive currency weakness have helped limit losses. Moreover, speculation that the BoJ could move toward another rate hike as early as April has provided some underlying support. Persistent inflation pressures, with consumer prices averaging above the BoJ’s 2% target for four consecutive years, continue to strengthen the case for policy normalization.


Traders Await Ueda’s Guidance

The BoJ is widely expected to keep policy unchanged on Friday after raising its overnight rate to 0.75% in December, the highest level in three decades. Investors will closely watch Governor Kazuo Ueda’s post-meeting remarks for clues on the timing of the next rate increase, which could set the tone for the Yen’s next directional move.


USD Gains Modestly Ahead of Key US Data

On the other side of the pair, the US Dollar found modest support as fears of a renewed trade war eased, reviving the so-called “Sell America” trade. This provided additional lift to USD/JPY, with markets now turning their attention to upcoming US data, including the Personal Consumption Expenditure (PCE) Price Index and the final GDP report, for fresh momentum.