The yen traded sideways during Thursday's Asian session as traders remained cautious ahead of key central bank events. The Bank of Japan will conclude its two-day policy meeting on Friday, with the market almost unanimously expecting it to raise interest rates to 0.75%, a near 30-year high.

More than the interest rate decision itself, investors are paying attention to the remarks made by Bank of Japan Governor Kazuo Ueda at the post-meeting press conference to judge the future pace of interest rate hikes and the end of the policy.

Ahead of the central bank's decision, some position adjustments led to increased volatility in the yen. Despite market concerns about Japan's deteriorating fiscal situation, the hawkish stance of the Bank of Japan contrasted sharply with expectations of further interest rate cuts by the Federal Reserve, and this policy divergence continued to support the low-yielding yen.

At the same time, the overall tone of global risk assets is weak, which has increased the attractiveness of the yen as a safe-haven asset, making short sellers cautious at this stage.

In the bond market, Japanese short-term government bonds were sold off due to expectations of interest rate hikes, with the yield on 10-year Japanese government bonds rising to its highest level since 2007. The narrowing interest rate differential between Japan and the United States provided a structural benefit to the yen.

Regarding the US dollar, although it has maintained a short-term rebound, its upside potential is limited due to the dovish outlook of the Federal Reserve. The market has already begun pricing in two possible rate cuts in 2026, while speculation about a dovish stance from the new Fed chairman has also dampened the willingness to go long on the dollar in the medium term.

Investors are also awaiting upcoming U.S. consumer inflation data to further determine the Federal Reserve's interest rate cut path.

The USD/JPY pair is biased towards strength in the short term but faces key resistance. From a technical perspective, the USD/JPY pair has broken above the 100-hour moving average, and the hourly and daily oscillators are improving simultaneously, indicating that short-term momentum is bullish.

However, the 156.00 level remains a key resistance area. A sustained break above this level is needed to confirm a new upward trend. If the breakout is successful, the price is expected to test the highs around 156.60 and 157.00 in succession.

On the downside support level, the 100-hour moving average has now become support around 155.30, followed by the psychological level of 155.00. A break below this area could intensify technical selling pressure, targeting the monthly low of 154.30, and a further breach could lead to a test of the psychological level of 154.00.


Editor's Note:

From the current perspective, the USD/JPY exchange rate has entered a "central bank decision-making window." Short-term movements are more event-driven than trend-driven, and whether the Bank of Japan signals "continued interest rate hikes" rather than a "one-off rate hike" will be the core factor determining the medium-term direction of the yen.

If Kazuo Ueda emphasizes that policy remains flexible and the pace of interest rate hikes depends on economic feedback, the yen may experience a "profit-taking correction"; conversely, if he releases a clear signal of continued tightening, the yen is expected to receive a new round of capital inflows.