The Japanese Yen (JPY) snaps a two-day losing streak against its American counterpart as traders opt to move to the sidelines and wait for the crucial Bank of Japan (BoJ) policy decision this Thursday. Moreover, the updated economic projections and BoJ Governor Kazuo Ueda's comments at the post-meeting press conference will be scrutinized for cues about the likely timing of the next interest rate hike. This, in turn, will play a key role in determining the next leg of a directional move for the JPY.

Heading into the key central bank event risk, hopes for the potential de-escalation of the US-China trade war remain supportive of a positive risk tone and act as a headwind for the safe-haven JPY. However, reviving US recession fears keeps a lid on the optimism. Moreover, bets for more rate cuts by the Federal Reserve (Fed), which marks a big divergence compared to hawkish BoJ expectations, should contribute to the lower-yielding JPY's relative outperformance against the US Dollar (USD).

The Bank of Japan is scheduled to announce its policy decision this Thursday and is widely expected to keep the policy interest rate steady at 0.5% amid the uncertainty surrounding US tariffs. Meanwhile, media reports suggest that the central bank could revise down its GDP forecasts for both fiscal years 2025 and 2026 to below 1%.
Investors will also keep a close eye on updated inflation projections and when the BoJ expects to reach its price target. BoJ Governor Kazuo Ueda has repeatedly talked about two-sided risks for inflation. Hence, Ueda's comments will be the key to assessing the future rate-hike path, which, in turn, will drive the Japanese Yen.
The final au Jibun Bank Japan Manufacturing PMI stood at 48.7 in April 2025, higher than a flash reading of 48.5 and March's 12-month low of 48.4. This, however, still marks the 10th straight month of decline in factory activity, though it does little to provide any meaningful impetus ahead of the key central bank event risk.

Source: Fxstreet