Asian markets are focused on the outcome of the Bank of Japan's latest monetary policy meeting. The market expects the Bank of Japan to raise its benchmark interest rate by 25 basis points to 1%, the highest level since 1995. This policy adjustment not only reflects persistent domestic inflationary pressures in Japan but is also closely related to the increased import costs resulting from the long-term depreciation of the yen.

As Bank of Japan Governor Kazuo Ueda was hospitalized due to health reasons and unable to attend this policy meeting, Deputy Governor Ryozo Himino will chair the policy discussion, and another Deputy Governor, Shinichi Uchida, will hold a press conference after the interest rate decision is announced. Since the market has already fully priced in the rate hike, a simple rate hike decision is unlikely to significantly strengthen the yen. Investors are more focused on the Bank of Japan's plans to reduce its purchases of Japanese government bonds and any hints about its future policy path.

Recently, Japan's inflation performance has shown some divergence. Data shows that Japan's consumer price index (CPI) rose 1.4% year-on-year in April, lower than March's 1.5%, and temporarily below the Bank of Japan's 2% inflation target. However, the wholesale inflation rate rose to 6.3% year-on-year in May, indicating that cost pressures on businesses remain significant. At the same time, the continued weakening of the yen has pushed up the costs of imported goods and raw materials, meaning that potential inflation risks have not completely subsided.

Previously, Kazuo Ueda stated that rising energy prices cannot be simply viewed as a short-term factor, because if inflation expectations are already high and wage growth is accelerating, the energy shock could affect corporate pricing and long-term inflation trends through a second-round effect. Although the situation in the Middle East has eased, with the US and Iran reaching an agreement to gradually restore navigation in the Strait of Hormuz and extend the ceasefire, the Bank of Japan still needs to assess the ongoing impact of previous energy price fluctuations on the domestic economy.

In the foreign exchange market, the USD/JPY pair is currently trading above the key psychological level of 160. While easing tensions in the Middle East have reduced demand for the dollar as a safe haven, the significant interest rate differential between Japan and the US has limited the yen's upside potential. The market generally believes that the 160 level remains a key exchange rate focus for the Japanese government; if the USD/JPY continues its rapid rise towards the 161 area, Japanese authorities may increase verbal warnings or even intervene in the foreign exchange market.

From a daily chart perspective, the USD/JPY pair maintains its overall upward structure, with the price consistently trading above the 20-day, 100-day, and 200-day moving averages, indicating that the medium- to long-term bullish trend remains intact. However, technical indicators suggest weakening upward momentum, indicating some profit-taking pressure above 160. Currently, the 20-day moving average around 159.65 is a key short-term support level; a break below this level could lead to further declines towards the 159.00 and 158.60 areas. On the upside, watch the previous high of 160.73 and the psychological resistance level of 161.00. A successful break above these levels would open up further upside potential, but the risk of intervention by Japanese authorities should be closely monitored.

From a 4-hour chart perspective, the USD/JPY pair remains in a high-level consolidation pattern in the short term. While the bulls maintain their advantage, selling pressure near the 160 level has increased significantly, and technical indicators are gradually entering a correction phase. If the exchange rate can stabilize above 160.00, there is a chance to retest the 160.73 high in the short term; conversely, if it breaks below the dynamic support at 159.65, the short-term correction may extend further to around 159.00. The market needs to pay close attention to the Bank of Japan's meeting results and officials' statements on future policy direction.

Editor's Summary : While the Bank of Japan's (BOJ) interest rate decision is expected to result in a 25 basis point rate hike, the key market impact will not be the rate adjustment itself, but rather the pace of reducing government bond purchases and the future policy stance. Given the yen's continued long-term weakness and persistent import inflation pressures, the BOJ may continue to signal a cautiously hawkish stance. However, due to the still significant interest rate differential between the US dollar and Japan, the USD/JPY exchange rate is likely to remain volatile at high levels in the short term. Investors should pay close attention to the BOJ's policy statement, press conferences, and the Japanese government's latest stance on exchange rate fluctuations.