USD/JPY pulls back from 148.75 highs with Fed and BoJ in the spotlight

• The US Dollar trims gains against the Yen on Tuesday but remains supported near multi-month highs.
• Trade deals, strong US data, and dwindling hopes of Fed cuts have boosted the USD over the last few days.
• A "dovish hold" by the BoJ might increase pressure on the Yen on Wednesday.

The US Dollar is struggling to extend gains after a three-day rally against the Japanese Yen. The pair has been capped at 140.75 on Tuesday, a few pips short of the multi-month highs, at 149.15, as investors turn their view to the BoJ and the Fed monetary policy decisions, due on Wednesday.

Investors are awaiting the US JOLTS Job Openings and the Conference Board's Consumer Confidence to confirm whether employment and consumption endorse the US economic resilience rhetoric. U.S. dollar moves, however, are likely to remain limited as investors await Wednesday's US GDP data and the Fed decision.

A strong GDP is likely to endorse the Fed's cautious stance

The US economy is expected to have featured a strong rebound in the second quarter of the year, supported by buoyant consumption figures. The GDP is seen growing at a 2.5% annualised pace, after a 0.5% contraction in the previous quarter.

These figures are expected to endorse the Federal Reserve's cautious monetary policy stance a few hours ahead of July's decision. The bank is widely expected to leave its benchmark interest rate at the current 4.25%-4.50% range, but further evidence of a strong economic momentum will give the bank more leeway to wait for the impact of tariffs before cutting interest rates further.

The BoJ is in a different context, diverse bank officials have reiterated their commitment to keep tightening their monetary policy, but the bank is not expected to hike rates again before assessing the real impact of US tariffs on the Japanese economy. A dovish message on Wednesday might disappoint investors and increase Yen weakness.