Japanese Yen Weakens, But Downside Seems Limited Ahead of BoJ and Fed Decisions

Yen on the Backfoot, But Not for Long?

The Japanese Yen (JPY) started the week in a weakened state, falling for the second day in a row against the US Dollar (USD). Currently, the USD/JPY pair trades higher, supported by risk-on market sentiment and fading near-term demand for safe-haven assets.

Despite the softening, analysts suggest the JPY’s downside is likely limited. The market is pricing in a possible Bank of Japan (BoJ) rate hike later this year, and persistent geopolitical risks are helping to stabilize the Yen’s fall.

Geopolitical and Trade Risks Support the JPY

Tensions in the Middle East, particularly the ongoing conflict between Iran and Israel, have reinforced JPY's traditional safe-haven appeal, even as broader markets show risk appetite. In addition, ongoing trade-related concerns globally could continue to underpin the JPY in coming sessions.

BoJ Normalization Expectations Building

Investors are increasingly confident that the BoJ will proceed with policy normalization due to Japan’s rising inflation trend. While JPY has weakened short-term, this hawkish BoJ stance may lead to currency stabilization or appreciation, particularly if paired with US Dollar weakness post-Fed meeting.

Traders Eye BoJ and Fed Decisions This Week

Markets remain cautious ahead of two key central bank events:

• Bank of Japan’s policy decision on Tuesday
• Federal Reserve’s FOMC meeting on Wednesday

Traders are stepping back from aggressive positions, opting for defensive trades and reduced exposure, awaiting the dual announcements that could shape USD/JPY dynamics through the rest of June.

Related Links (Internal for Tredu.com)

• USD/JPY Technical Outlook
• What to Expect from the June BoJ Meeting
• Geopolitics and Safe-Haven Currencies

Outlook

While the Japanese Yen remains under pressure, growing BoJ policy expectations, geopolitical tailwinds, and a potentially dovish Fed may keep further losses in check. The USD/JPY pair could see increased volatility after central bank statements.