Ella 
In early Asian trading on Tuesday, USD/JPY traded in negative territory for the third consecutive day. Ahead of this key event, USD/JPY was weighed down by consolidation in the U.S. dollar and U.S. Treasury yields. Market participants will be closely watching the Bank of Japan’s (BoJ) monetary policy meeting on Tuesday. USD/JPY is currently trading around 148.08, up 0.03% on the day.
Traders are placing lower bets on a rate cut by the Federal Reserve in 2024. It fell to 142 basis points from 175 basis points last week. The CME FedWatch Tool shows that the market has a 42% probability that the Fed may cut interest rates in March, down from 70% a week ago. This has therefore provided some support for the US dollar (USD), acting as a “tailwind” for USD/JPY.
In terms of the yen, the Bank of Japan is likely to maintain its bond yield control curve policy and interest rate policy unchanged at its January meeting on Tuesday. Traders will get more clues from the press conference. Bank of Japan Governor Kazuo Ueda is likely to offer some hints on when and how this year’s “normalization” will progress and ultimately move away from negative interest rates. Last week, Japan’s core consumer price index came in at 2.3% in December, after recording 2.5% in November. The report further weakened prospects for a reversal of current monetary policy.
Tuesday’s Bank of Japan interest rate decision and press conference will be the focus. This incident is likely to trigger market volatility. Later in the week, focus will turn to U.S. fourth-quarter gross domestic product (GDP) due on Thursday and core personal consumption expenditures price index due on Friday. These data and events may keep USD/JPY in a clear direction.
