22 Jan 2025

• The Japanese Yen moved away from a one-month top against the USD touched on Tuesday.
• The divergent BoJ-Fed policy expectations should help limit any meaningful JPY downfall.
• Traders might also opt to move to the sidelines ahead of the BoJ meeting starting Thursday.
• The Japanese Yen (JPY) maintains a negative outlook as it approaches the European session on Wednesday, although the potential for further decline appears constrained by the anticipation of an interest rate increase by the Bank of Japan (BoJ) later this week. This situation contrasts sharply with expectations that the Federal Reserve (Fed) may implement two interest rate cuts within the year. Consequently, this dynamic limits the recovery of the USD/JPY pair, which has recently hovered near the significant level of 156.00.
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• Market participants appear hesitant to make substantial investments, choosing instead to await the results of the highly anticipated two-day BoJ policy meeting scheduled for Friday, which is expected to significantly impact the short-term direction of the JPY. Meanwhile, a risk-on sentiment, reflected in the generally optimistic performance of equity markets, diminishes the appeal of the safe-haven JPY and provides support for the USD/JPY pair, particularly in the absence of any pertinent economic data releases.