Japanese Yen remains subdued ahead of BoJ policy decision

• The Japanese Yen edges lower as the BoJ is widely expected to leave interest rates unchanged on Friday.
• Reuters poll indicated the BoJ to keep its benchmark interest rate steady at 0%-0.1%.
• Nikkei reported that the BoJ is contemplating a reduction in its bond holdings to a range between ¥4.8 trillion and ¥7 trillion.

The Japanese Yen (JPY) edges lower against the US Dollar (USD) as the market anticipates the Bank of Japan's (BoJ) upcoming interest rate decision on Friday. According to a Reuters poll, economists widely expect the BoJ to keep its benchmark interest rate steady at 0%-0.1%. However, traders are paying close attention to any announcements concerning changes to the central bank's bond purchasing program, which could influence market dynamics.

Reports from the Nikkei indicate that the BoJ is contemplating a reduction in its Japanese government bond holdings. Currently, the BoJ targets approximately ¥6 trillion (about $38.5 billion) in bond purchases each month. The central bank has communicated plans to buy between ¥4.8 trillion and ¥7 trillion of bonds per month.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, edges higher despite the release of weaker-than-expected economic data on Thursday. The US Producer Price Index (PPI) came in softer, and Initial Jobless Claims were higher than anticipated. Nevertheless, the USD's strength can be attributed to the hawkish stance of the US Federal Reserve (Fed).

Federal Open Market Committee (FOMC) policymakers have adjusted their outlook, now projecting only one rate cut for the year, compared to the three cuts forecasted in March. This revised expectation indicates a more aggressive approach to managing inflation and maintaining economic stability, contributing to the USD's resilience.

Investors await the preliminary US Michigan Consumer Sentiment index, set to be released on Friday. This index will provide further insights into consumer confidence and economic outlook.

Daily Digest Market Movers: Japanese Yen declines as BoJ is expected to adopt a dovish stance

• Japanese Finance Minister Shunichi Suzuki said on Friday that he aims to achieve the primary balance goal. Suzuki further stated that he will keep an eye on China's excess production on the Japanese economy, per Reuters.
• US Initial Jobless Claims for the week ending June 7 showed a significant increase, with the number of claims rising by 13,000 to 242,000. This figure surpassed market expectations, which were set at 225,000, marking the highest level of jobless claims since August 2023.
• US Producer Price Index (PPI) came in weaker than expected, increasing 2.2% YoY in May, compared to the 2.3% rise in April (revised from 2.2%). Meanwhile, the core PPI figure rose 2.3% YoY in May, below the consensus and April’s reading of 2.4%.
• The Federal Open Market Committee (FOMC) left its benchmark lending rate in the range of 5.25%–5.50% for the seventh consecutive time in its policy meeting on Wednesday, as widely anticipated. In a press conference following the Fed's decision, Fed Chair Jerome Powell remarked that the restrictive stance on monetary policy is producing the expected effects on inflation.
• Japan Finance Minister Shunichi Suzuki said on Tuesday it is important to continue efforts to achieve economic growth and attain fiscal health to retain confidence in the country's fiscal policy, per Reuters.
• Nearly two-thirds of economists surveyed in a Reuters poll on Tuesday anticipate that the Bank of Japan will opt to commence tapering its monthly bond purchases at Friday's policy meeting. This decision marks a significant initial move aimed at gradually reducing the central bank's burgeoning balance sheet.
• Takeshi Minami, Chief Economist at Norinchukin Research Institute said, "There is no longer any reason to continue large-scale purchases of government bonds since it has been judged that a 2% rise in prices is within reach," per Reuters.
• According to Reuters, while speaking to parliament last week, Bank of Japan (BoJ) Governor Kazuo Ueda stated that inflation expectations are gradually rising but have yet to reach 2%. "We have been scrutinizing market developments since the March decision. As we proceed to exit our massive monetary stimulus, it's appropriate to reduce bond purchases," Ueda said.

Technical Analysis: USD/JPY moves above the key level of 157.00

USD/JPY trades around 157.20 on Friday. Analyzing the daily chart shows a bullish bias, with the pair consolidating within an ascending channel pattern. This pattern typically indicates a continuation of the upward trend, suggesting that the price is likely to keep rising as long as it remains within the channel.

The USD/JPY pair could face a key hurdle at the psychological level of 158.00. If the pair breaks above 158.00, the next target is around the upper boundary of the ascending channel near 159.20. The level of 160.32, marked in April as the highest level in over thirty years, represents a major resistance.

On the downside, the support appears at the lower boundary of the ascending channel around the 50-day Exponential Moving Average (EMA) at 155.18. A breach below this level could intensify downward pressure on the USD/JPY pair, potentially driving it toward the throwback support area around 152.80.

USD/JPY: Daily Chart