USD/JPY approaches 160.00 as BoJ might delay plans to trim bond-buying operations

• USD/JPY moves toward 160.00 on multiple tailwinds.
• The BoJ could further delay plans to trim bond-buying as core inflation decelerates.
• The US Dollar will be guided by the preliminary US S&P Global PMIs for June.

The USD/JPY pair clings to gains near 159.00 in Friday’s Asian session after a winning spell for six trading sessions. The asset is expected to extend its upside towards a multi-year high near 160.00 as investors expect that the Bank of Japan (BoJ) could further delay plans of reducing the amount of bond-buying beyond the July meeting.

In the latest monetary policy meeting, BoJ Governor Kazuo Ueda said that policymakers decided to delay plans to trim bond-buying and hike interest rates further to the July meeting. Policymakers also communicated their concerns toward inflation expectations due to sheer weakness in the Japanese Yen, which has made Japanese exports competitive in the global market and has increased import costs. The consequences of a weak Japanese Yen could result in high inflation in the economy.

However, the National Consumer Price Index (CPI) numbers for May appear to narrate a different story. The core CPI, which excludes food and energy prices, decelerated to 2.1% from the former reading of 2.4%. The report showed that National CPI, excluding Fresh Food, grew at a slower pace of 2.5% from expectations of 2.6% but was higher than the prior release of 2.2%.

Meanwhile, the US Dollar (USD) edges down to 105.50 but remains broadly firm as investors expect that the Federal Reserve (Fed) will lag behind other central banks in an attempt to pivot to the policy-normalization process. Fed policymakers have already signaled that there will be only one rate cut this year, which is supposed to be announced in the last quarter. Contrary to the Fed’s latest interest rate projections, financial markets expect there will be two rate cuts, and the policy expansion process will start from the September meeting.

Going forward, investors will focus on the US S&P Global PMIs data for June, which will be published at 13:45 GMT. The agency is expected to show a decline in the Composite PMI due to weakness in manufacturing as well as the service sector.