Ahead of BoJ’s policy decision, USD/JPY fluctuates around 128.50,

Amid risk-off impulse, and speculations for the Bank of Japan quitting its policy stance, the USD/JPY is struggling.

USD/JPY attempts to hold on its earlier gains as the US session begins, though it’s retracing after hitting daily highs of 129.16 before the Wall Street open. The US dollar is giving back earlier gains while sentiment continues to deteriorate. At the time of writing, the USD/JPY is trading at 128.46, up by 0.11%.

Wall Street is expected to open lower as US stock futures remain in negative territory. The dollar is retreating as shown by the US Dollar Index, down 0.57% at 101.984. The US 10-year Treasury bond yield, which usually correlates closely with the USD/JPY pair, trims its gains and sits at 3.535%, unchanged.

The US Empire State Manufacturing Report revealed by the New York Federal Reserve showed that business activity contracted sharply, with the index falling 22 points to -32.9. The report showed that new orders and shipments declined substantially, while delivery times were unchanged and inventories aimed higher.

Even though the data was worse than expected, the USD/JPY reaction to it was muted as traders braced for the two-day monetary policy decision of the Bank of Japan.

Expectations for a rate hike are very slim, though the March meeting jumped by 45%. Market analysts think that the BoJ could abandon its Yield Curve Control (YCC) to prepare the markets for its first interest rate hike at March or April’s meeting.

During the European session, the USD/JPY hit a daily high at 129.16 before pairing those gains. The rally stalled below last Friday’s high of 129.42, which exacerbated the drop toward 128.50.