USD/JPY edges higher during the Asian session on Tuesday, albeit lacks follow-through.
A positive risk tone undermines the safe-haven JPY and lends some support to the major.
Traders now seem reluctant and prefer to wait for this week's key central bank event risks.
The USD/JPY pair builds on the overnight late rebound of around 70-75 pips from the 140.75 area and gains some positive traction during the Asian session on Tuesday. Spot prices currently trade just above mid-141.00s and remain well within the striking distance of a two-week high touched last Friday.
Despite growing worries about a global economic downturn, hopes for more stimulus continue to boost investors' confidence. In fact, China’s top economic planner - the National Development and Reform Commission (NDRC) - unveiled new measures on Monday that seek to promote, encourage and spur private investment in some infrastructure sectors. The NDRC added that it will strengthen financing support for private projects. This remains supportive of a generally positive tone around the equity markets, which is seen undermining the safe-haven Japanese Yen (JPY) and acting as a tailwind for the USD/JPY pair.
The JPY is further weighed down by expectations that the Bank of Japan (BoJ) will stick to its dovish stance at the end of a two-day meeting on Friday. In fact, a government spokesperson said on Monday that Japan's inflation will likely slow to around 1.5% next year when stripping away the effect of one-off factors. Japan's top currency diplomat Masato Kanda, however, said that the recent inflation and wage rises were overshooting expectations and the data available so far supports prospects for an upgrade in the BoJ's inflation forecasts. This holds back traders from placing aggressive directional bets around the USD/JPY pair.
The US Dollar (USD), on the other hand, consolidates its recent recovery gains from its lowest level since April 2022 touched last week and does little to provide any meaningful impetus to the major. Market participants also seem reluctant and prefer to wait on the sidelines ahead of this week's key central bank event risks. The Federal Reserve (Fed) is scheduled to announce its policy decision on Wednesday and is widely expected to hike rates by 25 bps. Investors, meanwhile, remain sceptic if the US central bank will commit to a more dovish policy stance or stick to its forecast for a 50 bps rate hike by the end of this year.
Hence, the focus will remain glued to the accompanying monetary policy statement and Fed Chair Jerome Powell's remarks at the post-meeting press conference. Investors will look for clues about the Fed's future rate-hike path, which, in turn, will play a key role in influencing the near-term USD price dynamics. The market attention will then shift to the BoJ monetary policy update on Friday. This, along with important US macro releases, including the Advance Q2 GDP report and the Core PCE Price Index (the FEd's preferred inflation gauge) will help determine the next leg of a direcitonal move for the USD/JPY pair
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