Japanese Yen looks to BoJ for fresh impetus; bullish potential seems intact

• The Japanese Yen traders refrain from placing aggressive bets ahead of the BoJ policy decision.
• The updated economic projections will be scrutinized for cues about the future rate-cut path.
• The divergent BoJ-Fed policy expectations should continue to support the lower-yielding JPY.

The Japanese Yen (JPY) snaps a two-day losing streak against its American counterpart as traders opt to move to the sidelines and wait for the crucial Bank of Japan (BoJ) policy decision this Thursday. Moreover, the updated economic projections and BoJ Governor Kazuo Ueda's comments at the post-meeting press conference will be scrutinized for cues about the likely timing of the next interest rate hike. This, in turn, will play a key role in determining the next leg of a directional move for the JPY.

Heading into the key central bank event risk, hopes for the potential de-escalation of the US-China trade war remain supportive of a positive risk tone and act as a headwind for the safe-haven JPY. However, reviving US recession fears keeps a lid on the optimism. Moreover, bets for more rate cuts by the Federal Reserve (Fed), which marks a big divergence compared to hawkish BoJ expectations, should contribute to the lower-yielding JPY's relative outperformance against the US Dollar (USD).

Japanese Yen traders await the crucial BoJ policy decision and updated economic projections before placing directional bets

• The Bank of Japan is scheduled to announce its policy decision this Thursday and is widely expected to keep the policy interest rate steady at 0.5% amid the uncertainty surrounding US tariffs. Meanwhile, media reports suggest that the central bank could revise down its GDP forecasts for both fiscal years 2025 and 2026 to below 1%.
• Investors will also keep a close eye on updated inflation projections and when the BoJ expects to reach its price target. BoJ Governor Kazuo Ueda has repeatedly talked about two-sided risks for inflation. Hence, Ueda's comments will be the key to assessing the future rate-hike path, which, in turn, will drive the Japanese Yen.
• The final au Jibun Bank Japan Manufacturing PMI stood at 48.7 in April 2025, higher than a flash reading of 48.5 and March's 12-month low of 48.4. This, however, still marks the 10th straight month of decline in factory activity, though it does little to provide any meaningful impetus ahead of the key central bank event risk.
• From the US, Automatic Data Processing (ADP) reported on Wednesday that private-sector employment rose by 62,000 in April. This represented a notable decline from the 147,000 increase (revised from 155,000) recorded in March and also missed the market expectation for a reading of 108,000 by a wide margin.
• According to the advance estimates by the Bureau of Economic Analysis, the US economy contracted at an annualized rate of 0.3% during the first quarter of 2025 after growing at a solid pace of 2.4% in the previous quarter. The data revives fears about a looming US recession amid signs of easing inflationary pressures.
• The US Personal Consumption Expenditures (PCE) Price Index edged lower to 2.3% on a yearly basis in March from 2.5% in February. Adding to this, the core PCE Price Index, which excludes volatile food and energy prices, rose 2.6% compared to the 3% increase reported in February and was in line with analysts' estimates.
• This comes on top of worries about US President Donald Trump's erratic trade policies and reaffirms bets that the Federal Reserve will resume its rate-cutting cycle in June. In fact, Trump said this Thursday we have "potential" trade deals with India, South Korea and Japan, and that there is a "very good probability we'll reach a deal with China."
• Meanwhile, traders are pricing in the possibility that the US central bank will lower borrowing costs by a full percentage point by the end of the year. This keeps the US Dollar well within striking distance of a multi-year low touched last week and suggests that the path of least resistance for the lower-yielding JPY remains to the upside.

USD/JPY might confront stiff resistance near the 143.55-143.60 area; technical setup warrants some caution for bulls

From a technical perspective, the USD/JPY pair is looking to build on its strength beyond the 143.00 mark and the 100-period Simple Moving Average (SMA) on the 4-hour chart. Any subsequent move up, however, is likely to confront stiff resistance near the 143.55-143.60 region ahead of the 144.00 round figure amid still negative oscillators on the daily chart. That said, some follow-through buying will set the stage for an extension of the recent recovery from a multi-month low and lift spot prices to the next relevant hurdle near the 144.60-144.65 region. The upward trajectory could extend further and allow bulls to reclaim the 145.00 psychological mark.

On the flip side, the 142.65-142.60 area now seems to protect the immediate downside, below which the USD/JPY pair could drop to the 142.00 mark. A convincing break below the latter will be seen as a fresh trigger for bearish traders and make spot prices vulnerable to accelerate the fall towards mid-141.00s en route to the 141.10-141.00 region. The downward trajectory could extend further towards intermediate support near the 140.50 area and eventually expose the multi-month low - levels below the 140.00 psychological mark touched last week.