Early on Friday, around 03:00 AM GMT, the Bank of Japan (BoJ) will announce the likely extraordinary monetary policy meeting decisions taken after a two-day brainstorming. Following the rate decision, BoJ Governor Kazuo Ueda will attend the press conference, around 06:00 AM GMT, to convey the logic behind the latest policy moves.

The Japanese central bank is widely expected to keep the short-term interest rate target at -0.1% while directing 10-year Japanese Government Bond (JGB) yields with the bank of /-0.50%.

Escalating the importance of today’s BoJ announcements is the quarterly BoJ Outlook Report and the latest chatters suggesting the Japanese central bank’s readiness for tweaking the Yield Curve Control (YCC) policy.

Also, the latest increase in the Japanese inflation clues and the hawkish performance of major central banks highlights today’s BoJ monetary policy meeting announcements as market players place heavy bets on the end of ultra-easy measures during 2023.

Ahead of the event, Analysts at Standard Chartered said,

We expect the BoJ to keep the policy rate unchanged. While some market participants are expecting a change in YCC amid JPY weakness, we think the BoJ will adopt a wait-and-see stance for at least the next couple of months. Considering Japan’s long-standing deflation, the BoJ may want to remain dovish for now.

How could it affect the USD/JPY?

USD/JPY pares intraday losses during the five-day losing streak at the lowest level in a week ahead of the BoJ event. In doing so, the Yen pair justifies the latest corrective bounce in the US Dollar amid fears of the US-China tension, as well as due to the cautious mood ahead of the Fed’s favorite inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index for June, expected 4.2% YoY versus 4.6% prior.

It’s worth noting that the US Dollar Index (DXY) rallied the most since March the previous day after the US growth numbers impressed the greenback bulls. However, chatters about the likely BoJ’s tweak to its YCC policy exert downside pressure on the USD/JPY price.

Japanese policymakers have already jostled with the expectations of a major move to alter the ultra-easy monetary policy, by suggesting no need for monetary policy change. However, the recent announcements of the US bond issuance due to the debt-ceiling deal are talks of the town supporting the official push for higher rates in late 2023. It should be noted, however, that the BoJ’s play of the Yield Curve Control (YCC) will be crucial to observe during today’s monetary policy releases.

In a case where Ueda manages to pave the way for future rate hikes, either via the alteration of the YCC band or dumping the YCC ultimately, the USD/JPY could extend its downside break of the 50% Fibonacci retracement level of October 2022 to January 2023 fall, near 139.60 by the press time, toward the horizontal area comprising multiple levels marked since December 2022, close to 138.00-137.80.

Alternatively, a 50% Fibonacci retracement level of 139.60 and the 140.00 round figure may initially restrict the USD/JPY recovery ahead of directing the bulls to May’s high of near 140.95, quickly followed by the 141.00 round figure.