Title: USD/JPY stays mildly bid above 143.00 as Japan inflation, sluggish yields probe BOJ doves

September 20, 2022 12:29 AM ET

By: AnalysisWatch

Despite the recent rally in Europe early Tuesday morning, USD/JPY is struggling to hold 143.00. Meanwhile, the yen pair reflects market indecision ahead of key monetary policy decisions by the US Federal Reserve (Fed) and the Bank of Japan (BOJ).

It is worth noting that Japan's eight-year high inflation data, as measured by the nation's CPI YoY for August, is adding to the weaker yen and pushing the Bank of Japan (BOJ) to change monetary policy even as doves hold the reins tightly. Strong Japanese government bond (JGB) yields also support the BOJ's hawkish bias.

Still, Reuters reported that the BOJ is set to maintain ultra-low interest rates and a dovish policy stance on Thursday, a decision that comes hours after its US counterpart's expected big rate hike and could trigger a fresh bout of yen selling. The BOJ preview also said, "At the two-day policy meeting ending Thursday, the BOJ is expected to maintain its target for short-term rates at -0.1% and for 10-year Treasury yields at around 0%. Kuroda will hold a press conference after the meeting.

Elsewhere, Japanese Finance Minister Shunichi Suzuki said on Tuesday that he "expects the Bank of Japan (BOJ) to conduct policy in an appropriate manner with regard to prices and the economy." The country's Chief Cabinet Secretary, Hirokazu Matsuno, echoed the same sentiment, saying that "the decision on reserve funds seeks to mitigate the impact of rising prices."

Moving forward, traders on USD/JPY will be paying attention to the Fed vs. BOJ divergence to determine the pair's near-term direction. A price decline is not out of the question if the Fed decides to temper further rate hikes and the BOJ sounds a cautiously dovish tone A.