Ella 
In the Asian market on Tuesday, the yen rose against the US dollar for the second consecutive day, dragging the USD/JPY down to the 147.25 area. President Joe Biden is expected to authorize U.S. military action in the Middle East in response to a drone strike by pro-Iran militias near the Jordanian-Syrian border that killed three U.S. soldiers. This increases the risk of further escalation in geopolitical tensions, which in turn is seen as bolstering the yen’s relative safe-haven status.
Meanwhile, the Bank of Japan (BoJ) said last week that conditions were gradually being met to gradually taper its massive stimulus policy and bring short-term interest rates out of negative territory. In addition, a new round of substantial wage increases by Japanese companies is expected to stimulate consumer spending and demand-driven inflation, which will allow the Bank of Japan to move away from its ultra-loose monetary policy regime. This masks signs of slowing inflation in Japan to a greater extent and continues to boost the yen.
On the other hand, the U.S. dollar was dragged down by a sharp drop in U.S. Treasury yields overnight, becoming another factor that led to a higher USD/JPY exchange rate. However, traders may avoid making aggressive directional bets, preferring to wait for more clues on when the Federal Reserve will start cutting interest rates. Therefore, the market focus will remain on the outcome of the high-profile two-day Federal Reserve policy meeting starting today.
