Japanese Yen trades with negative bias ahead of the crucial BoJ policy decision

The Japanese Yen attracts some sellers following the release of softer domestic data.

A modest USD recovery from a multi-month trough further lends support to USD/JPY.

Traders seem reluctant to place aggressive bets ahead of the BoJ-Fed policy decisions.

The Japanese Yen (JPY) edges lower during the Asian session on Wednesday in reaction to weaker-than-expected domestic data, though it lacks follow-through selling as traders seem reluctant ahead of the Bank of Japan (BoJ) decision. The Japanese central bank is widely anticipated to keep the short-term interest rate steady at 0.50% amid the uncertainty over US President Donald Trump's trade policies and their impact on the economy. Hence, investors will look for signals on the timing and the scope of future rate hikes by the BoJ.

The focus will then shift to the outcome of a two-day FOMC policy meeting due to be announced later during the US session. The US central bank is also expected to leave interest rates unchanged, though the markets are pricing in the possibility of three 25 basis points rate cuts by the end of this year. This marks a big divergence in comparison to the BoJ's hawkish stance, which has resulted in the recent sharp narrowing of the US-Japan rate differential and should continue to act as a tailwind for the lower-yielding JPY. 

Japanese Yen bulls remain on the defensive in the wake of unimpressive domestic data, ahead of the BoJ 

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• Data released earlier this Wednesday showed that Japan's Trade Balance shifted to a surplus of ¥584.5 billion in February from a deficit of ¥415.43 billion in the same month a year earlier. The reversal was driven by a surge in exports, which increased by 11.4% YoY, and a larger-than-expected fall of 0.7% in imports. 

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• Meanwhile, Japan’s Machinery Orders fell 3.5% MoM in January 2025, significantly worse than the 1.2% decline registered in the previous month. On an annual basis, Machinery Orders rose 4.4% during the reported month, slightly above December’s 4.3% increase, though the reading was below the 6.9% forecast.

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• Adding to this, a Reuters Tankan poll indicated that business sentiment among Japanese manufacturers worsened for the first time in three months during March amid concerns about US tariff policies and weakness in China’s economy. In fact, the manufacturers’ index came in at -1, down from +3 in February. 

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• Investors now look forward to the crucial Bank of Japan decision. This, along with the accompanying policy statement and BoJ Governor Kazuo Ueda's comments at the post-meeting press conference, could provide cues about the likely timing of the next interest rate hike and influence the Japanese Yen.

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• The results of Japan's annual spring labor negotiations, which concluded on Friday, showed that firms largely agreed to union demands for strong wage growth for the third straight year. This could boost consumer spending and contribute to rising inflation, giving the BoJ headroom to keep hiking rates.

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• Investors on Wednesday will also focus on the outcome of a two-day FOMC monetary policy meeting, due to be announced later during the US session. Heading into the key central bank event risks, a modest US Dollar recovery from a multi-month low pushes the USD/JPY pair back above mid-149.00s.

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USD/JPY needs to find acceptance above the 150.00 psychological mark to support prospects for further gains

From a technical perspective, the recent breakout above the 100-period Simple Moving Average (SMA) on the 4-hour chart was seen as a key trigger for bulls. Moreover, oscillators on the said chart are holding comfortably in positive territory and support prospects for additional gains. That said, the overnight failure ahead of the 150.00 psychological mark warrants some caution. Hence, it will be prudent to wait for a sustained strength beyond the said handle before positioning for a move towards the 150.75-150.80 region, or the 200-period SMA on the 4-hour chart, en route to the 151.00 round figure. 

On the flip side, the 149.20 area, followed by the 149.00 mark and the 148.80 region (100-period SMA on the 4-hour chart) should act as immediate support. A convincing break below the latter will suggest that the recent move-up witnessed over the past week or so has run out of steam and drag the USD/JPY pair to the 148.25-148.20 support en route to the 148.00 mark. The downward trajectory could extend further towards the 147.70 area, 147.20 region, and the 147.00 mark before spot prices eventually drop to retest a multi-month low, around the 146.55-146.50 region touched on March 11.