USD/JPY rebounds to near 156.50 as BoJ refrains from committing specific rate hike path

• USD/JPY recovers sharply to near 156.50 as Japanese Yen underperforms its major peers.
• The BoJ refrained from providing a specific policy-tightening path.
• US President Trump has pushed back fears of imposing tariffs on China.

The USD/JPY recovers Bank of Japan's (BoJ) interest rate hike-inspired losses and rises to near 156.60 in Friday's North American session. The Japanese Yen (JPY) has turned upside down in the aftermath of the BoJ's monetary policy announcement.

The initial reaction from the Yen was very bullish after the BoJ raised its key borrowing rates by 25 basis points (bps) to 0.5%, as expected. However, it dived later. Only one policymaker, Toyoaki Nakamura, dissented to the decision to tighten the monetary policy further. The sell-off in the Yen came after BoJ Governor Kazuo Ueda's press conference in which he refrained from committing a pre-defined policy-tightening path.

"We don't have any preset idea and the central bank will make a decision at each policy meeting by looking at economic and price developments as well as risks," Ueda said.

When asked about the impact of United States (US) President Donald Trump's tariff policies on BoJ's monetary policy stance, Ueda said, "There's very high uncertainty on the scale of tariffs. Once there is more clarity, we will take that into our forecasts and reflect them in deciding policy."

Though investors have underpinned the US Dollar (USD) against the Yen, it is underperforming its other peers as its risk-premium has diminished significantly. The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, slumps to 107.45, the lowest level seen in over a month.

USD's risk premium has been diminished as Trump has dialed back expectations of tariffs on China. In an interview with Fox News on Thursday, Trump said that he could reach a deal with China without raising tariffs.