Japanese Yen consolidates against USD as traders await BoJ rate decision on Friday

• Japanese Yen struggles to gain any meaningful traction as the focus remains glued to the BoJ meeting.
• A positive risk tone and concerns about Japan’s fiscal health act as a headwind for the safe-haven JPY.
• A modest USD uptick further supports USD/JPY ahead of the US PCE Price Index and the US GDP report.

The Japanese Yen (JPY) is seen oscillating in a narrow trading band against its American counterpart during the Asian session on Thursday amid mixed fundamental cues. The global risk sentiment gets a strong lift in reaction to US President Donald Trump's U-turn on Greenland and undermines demand for traditional safe-haven assets, including the JPY. Apart from this, the recent chaotic selloff in Japan's bond markets, led by concerns about expansionary fiscal policy under Prime Minister Sanae Takaichi, keeps the JPY bulls on the sidelines.

However, expectations that Japanese authorities would step in to stem further weakness in the domestic currency continue to act as a tailwind for the JPY. Traders also seem reluctant and opt to wait for more cues about the likely timing of the next interest rate hike by the Bank of Japan (BoJ). Hence, the focus will be on the outcome of a two-day BoJ meeting on Friday and Governor Kazuo Ueda's comments during the post-decision press conference, which would play a key role in determining the next leg of a directional move for the JPY.

Japanese Yen traders seem non-committal amid mixed cues, ahead of BoJ meeting

• US President Donald Trump pulled back from his threat to slap heavy tariffs on several European countries and said in Davos on Wednesday that he had reached an agreement on a framework for a future deal on Greenland with NATO. The S&P 500 rose sharply in reaction to the latest development, and the spillover effect lifts Asian equities on Thursday.
• Japan’s bond market suffered a severe selloff on Tuesday amid increasing concerns about the country’s fiscal health on the back of Prime Minister Sanae Takaichi’s fiscally expansionary policies. Adding to this, a tepid response to a 20-year debt auction on Tuesday added to the negative sentiment, pushing yields on long-dated government bonds to record highs.
• The negative fundamental backdrop for the Japanese Yen, however, is offset by hawkish Bank of Japan expectations. In fact, a Reuters report early this week suggested that some policymakers inside the BoJ see scope to raise interest rates as early as April. Moreover, the recent JPY downfall could add to price pressures and force the BoJ into faster action.
• In fact, a BoJ survey for December showed on Monday that most Japanese households expect prices to keep rising for the next few years. This comes on top of data released last Friday, which revealed that Japan’s inflation has averaged above the BoJ's 2% target for four straight calendar years, which, in turn, backs the case for further policy tightening.
• Meanwhile, Japan's Finance Minister Satsuki Katayama last week hinted at the possibility of joint intervention with the US to deal with the recent weakness in the domestic currency. The JPY bulls, however, seem reluctant to place aggressive bets and opt to move to the sidelines ahead of the crucial two-day BoJ policy meeting, starting this Thursday.
• The BoJ is scheduled to announce its decision on Friday and is expected to maintain the status quo after raising the overnight interest rate to 0.75%, or the highest in 30 years in December. Investors will scrutinize Governor Kazuo Ueda's remarks during the post-decision press conference for cues about the timing of the next rate hike, which will drive the JPY.
• The US Dollar gains some positive traction as the so-called 'Sell America' trade seems to have receded amid easing trade war fears. This further acts as a tailwind for the USD/JPY pair as investors now look to the release of the US Personal Consumption Expenditure (PCE) Price Index and the final US Q2 GDP growth report for some meaningful impetus.

USD/JPY struggles to build on breakout momentum beyond the 158.15 confluence

The overnight breakout through the 158.15 confluence – comprising the 100-hour Simple Moving Average (SMA) and the 38.2% Fibonacci retracement level of the recent pullback from the highest level since July 2024 – favors the USD/JPY bulls. The Moving Average Convergence Divergence (MACD) line stands above the Signal line, with both just over the zero mark, while a contracting histogram suggests momentum is cooling after the recent upswing. The Relative Strength Index (RSI) prints 58, above its midline, reinforcing mild bullish traction.

Meanwhile, the 50% retracement at 158.39 caps the rebound, and a decisive break higher would expose the next resistance at 61.8% Fibonacci retracement, around 158.63. That said, failure to clear the 50% level could see a pullback toward dynamic support at the 100-hour SMA.

(The technical analysis of this story was written with the help of an AI tool.)