The Japanese Yen (JPY) reversed its Asian session losses against its US counterpart and attempted to build on gains recorded over the past two days. Uncertainties over US President Donald Trump's trade policies and rising geopolitical tensions kept investors cautious, which in turn, was seen lending support to the safe-haven JPY. Further, bets that the Bank of Japan (BOJ) will raise interest rates further in 2025, despite its dovish pause last week, turned out to be another factor supporting the JPY.

However, optimism over a potential de-escalation in the US-China trade war and easing fears of a US recession kept JPY investors from placing aggressive bets. Traders also seemed reluctant and preferred to wait for further cues on the Federal Reserve's (Fed) rate-cutting path, which will play a key role in influencing the US Dollar (USD) and provide a fresh impetus to the USD/JPY pair. Hence, the market focus will remain on the outcome of the two-day FOMC meeting starting on Tuesday.

Japanese Yen Traders Appear Noncommittal Amid Mixed Signals, Ahead Of Key FOMC Meeting

The Bank of Japan was cautious last week by cutting its growth and inflation forecasts, forcing investors to scale back their bets for another interest rate hike in June or July. However, the central bank reiterated that it remains committed to raising interest rates further if the economy and prices move in line with its forecasts.

US President Donald Trump's erratic trade policies have overshadowed optimism led by signs of easing US-China trade tensions and kept investors on guard. In fact, Trump on Sunday announced 100% tariffs on all films produced overseas. In addition, geopolitical risks support the Japanese Yen as a safe-haven asset.

The Russian Defense Ministry said that Ukraine launched drone attacks targeting Moscow for the second night in a row on Monday. This follows reports of new Ukrainian attempts to cross into Russia's Kursk region. This comes days after Russian President Vladimir Putin announced a three-day ceasefire on May 8-10.

Additionally, Israel struck targets in Yemen in response to an Iranian-backed Houthi ballistic missile attack that hit Israel's main airport on Sunday. The Houthis warned on Sunday that they could strike again and would impose a complete air blockade on Israel by repeatedly targeting the airport.

Meanwhile, Trump hinted at the possibility of a trade deal with certain countries earlier this week and also hinted that he is open to rolling back the massive tariffs imposed on China. Further, China's Commerce Ministry said on Friday that it is evaluating the possibility of trade talks with the US.

On the economic data front, a survey by the Institute for Supply Management (ISM) showed on Monday that growth in the US services sector accelerated in April. Moreover, signs of a still-resilient US labor market helped ease concerns about a US recession and acted as a tailwind for the US dollar.

However, traders seemed reluctant to place any aggressive bets and preferred to stay on the sidelines ahead of the two-day FOMC policy meeting starting on Tuesday. Investors will be looking for fresh cues on the Fed's future rate-cutting path, which in turn will influence the USD and the USD/JPY pair. (Newsmaker23)

Source: FXstreet