Japanese Yen bulls remain on the sidelines ahead of the crucial FOMC policy meeting

• The Japanese Yen attracts some intraday sellers on Tuesday, though the downside risk remains limited.
• Trade-related uncertainties and geopolitical risks continue to act as a tailwind for the safe-haven JPY.
• The divergent BoJ-Fed expectations further contribute to capping USD/JPY ahead of the FOMC meeting.

The Japanese Yen (JPY) reverses an Asian session dip against its American counterpart and looks to build on the gains registered over the past two days. The uncertainty over US President Donald Trump’s trade policies and rising geopolitical tensions keep investors on edge, which, in turn, is seen lending some support to the safe-haven JPY. Furthermore, bets that the Bank of Japan (BoJ) will hike interest rates further in 2025, despite last week’s dovish pause, turn out to be another factor underpinning the JPY.

However, the optimism over the potential de-escalation of the US-China trade war and easing concerns about a US recession hold back the JPY bulls from placing aggressive bets. Traders also seem reluctant and opt to wait for more cues about the Federal Reserve’s (Fed) rate cut path, which will play a key role in influencing the US Dollar (USD) and provide a fresh impetus to the USD/JPY pair. Hence, the market focus will remain glued to the outcome of a two-day FOMC meeting starting this Tuesday.

Japanese Yen traders seem non-committed amid mixed cues, ahead of the crucial FOMC meeting

• The Bank of Japan struck a cautious tone last week by slashing its growth and inflation forecasts, forcing investors to scale back their bets for the next rate hike in June or July. The central bank, however, reiterated that it remains committed to raising rates further if the economy and prices move in line with its forecasts.
• US President Donald Trump’s erratic trade policies overshadow the optimism led by signs of easing US-China trade tensions and keep investors on edge. In fact, Trump on Sunday announced a 100% tariff on all movies produced in foreign countries. Moreover, geopolitical risks lend support to the safe-haven Japanese Yen.
• Russia’s defense ministry said that Ukraine launched a drone attack targeting Moscow for the second night in a row on Monday. This follows reports of fresh attempts by Ukraine to cross into Russia’s Kursk region. This comes days after Russian President Vladimir Putin declared a three-day ceasefire over May 8-10.
• Adding to this, Israel struck targets in Yemen in response to the Iranian-backed Houthis’ ballistic missile attack that hit Israel’s main airport on Sunday. The Houthis warned on Sunday that they could strike again and would impose a comprehensive air blockade on Israel by repeatedly targeting airports.
• Meanwhile, Trump hinted at possible trade agreements with certain countries as early as this week and also signaled that he is open to lowering massive tariffs imposed on China. Furthermore, China’s Commerce Ministry said last Friday that it was evaluating the possibility of trade talks with the US.
• On the economic data front, the Institute for Supply Management (ISM) survey showed on Monday that the growth in the US services sector picked up in April. Adding to this, signs of a still resilient US labor market help ease concerns about a US recession and act as a tailwind for the US Dollar.
• Traders, however, seem reluctant to place aggressive bets and opt to move to the sidelines ahead of a two-day FOMC policy meeting starting this Tuesday. Investors will look for fresh cues about the Fed’s future interest rate-cut path, which, in turn, will influence the USD and the USD/JPY pair.

USD/JPY remains vulnerable; last week’s failure near the 200-period SMA on H4 remains in play

From a technical perspective, the USD/JPY pair last week struggled to find acceptance above the 50% Fibonacci retracement level of the March-April downfall and faced rejection near the 200-period Simple Moving Average (SMA) on the 4-hour chart. The subsequent decline and negative oscillators on daily/hourly charts suggest that the path of least resistance for spot prices is to the downside. Hence, any attempted recovery back above the 144.00 mark might still be seen as a selling opportunity near the 144.25-144.30 supply zone. A sustained strength beyond the latter, however, could trigger a short-covering rally and allow spot prices to reclaim the 145.00 psychological mark.

On the flip side, weakness below the Asian session low, around the 143.55-143.50 area, has the potential to drag the USD/JPY pair to the 143.30 intermediate support en route to the 143.00 mark. The next relevant support is pegged near the 142.65 region, which if broken decisively would expose the 142.00 level before the currency pair eventually drops to the 141.60-141.55 zone and the 141.00 round figure.