USD/JPY is stable around 141.50 ahead of key events

• USD/JPY is moving higher at the start of the European session on Tuesday, though it lacks continuation.
• The positive risk tone weighs on the safe-haven Japanese Yen and offers some support for the pair.
• Traders now seem reluctant, preferring to wait for key central bank events this week.

The pair USD/JPY extends the previous day’s bounce of around 70-75 pips from the 140.75 zone and gains some positive traction during the early European session on Tuesday. The pair is trading around the 141.50 region and remains close to the two-week highs reached last Friday.

Despite growing concerns about a global economic downturn, hopes for further stimulus continue to boost investor confidence. Indeed, China’s top economic planner, the National Development and Reform Commission (NDRC), on Monday unveiled new measures to promote, foster and stimulate private investment in some infrastructure sectors. The NDRC added that it will strengthen financial support for private projects. This remains support for a positive tone around the equity markets, weighing on the safe-haven Japanese Yen (JPY) and acting as a tailwind for the USD/JPY pair.

He Yen remains weighed down by expectations that the Bank of Japan will maintain its dovish stance at the end of their meeting on Friday. Indeed, a government spokesman said on Monday that Japanese inflation is likely to slow to 1.5% next year, if one-off factors are taken out. However, Masato Kanda, Japan’s top foreign exchange diplomat, said that recent rises in inflation and wages were exceeding expectations, and that the data available to date supported the prospects for an improvement in the Bank of Japan’s inflation forecasts. This stops traders from taking aggressive directional positions around the USD/JPY pair.

The US dollar, for its part, consolidates its recent recovery from the lowest level since April 2022 that it touched last week and does little to give the pair any significant momentum. Market participants also seem reluctant, preferring to wait on the sidelines before this week’s key central bank events. The Federal Reserve (Fed) will announce its policy decision on Wednesday and is expected to raise rates 25 basis points. Meanwhile, investors are skeptical about whether the US central bank will take a more dovish stance or stick to its forecast of a 50 basis point rate hike by the end of the year.

Therefore, attention will remain focused on the monetary policy statement and Fed Chairman Jerome Powell’s remarks at the post-meeting press conference. Investors will look for clues as to the Fed’s future rate hike path, which in turn will play a key role in influencing near-term dollar price dynamics. Markets’ attention will then turn to the BoJ’s monetary policy update on Friday. This, along with important US macroeconomic releases such as the Q2 GDP preview and the Core PCE Price Index (the Fed’s preferred inflation gauge) will help determine the next directional move for the USD/JPY pair.

USD/JPY technical levels to watch