■Market participants remain cautious as dovish signals from the Bank of Japan continue weighing on Tether USDTthe Yen.
■Recent Tokyo inflation data came in softer than expected, reducing pressure for policy tightening.
■All eyes turn to the BoJ meeting outcome and upcoming US inflation figures for directional cues.
The Japanese currency continues trading near its weakest levels in decades against the US Dollar during Friday's Asian session as financial markets brace for the Bank of Japan's policy announcement. Following March's landmark rate hike - the first in 17 years - analysts widely anticipate the central bank will maintain current policy settings given recent indications of moderating price pressures. Market attention has shifted to the bank's updated quarterly economic projections, which could significantly impact near-term currency movements.
The absence of concrete intervention measures from Japanese officials has failed to provide support for the struggling Yen. Concurrently, the US Dollar shows limited movement near its recent lows following Thursday's disappointing GDP data, which revealed slowing economic growth momentum. However, persistent inflationary pressures continue supporting expectations that the Federal Reserve will maintain restrictive policy settings, creating underlying support for the USD/JPY pair ahead of critical US inflation data.
Market Watch: Key Factors Influencing Yen Valuation Before Major Policy Announcements
Friday's government report showed Tokyo's consumer price growth slowed significantly in April, reducing expectations for hawkish policy signals from Japan's central bank and further pressuring the Yen.
The latest Tokyo CPI figures revealed annual price increases of 1.8% for both headline and core measures (excluding fresh food and energy), falling short of market projections.
Notably, the BoJ's preferred inflation gauge - which excludes both fresh food and energy costs - dipped below the 2% target for the first time since late 2022, suggesting weakening underlying price pressures.
US economic data released Thursday showed GDP expanding at just 1.6% annualized in Q1 2024, representing the slowest pace since mid-2022 and indicating economic momentum may be faltering.
While growth concerns emerged, stubborn inflation components in the report reinforced expectations that the Federal Reserve will maintain elevated interest rates for an extended period.
Market speculation about potential reductions in Japanese government bond purchases briefly pushed five-year yields to multi-year highs, though this provided minimal support for the domestic currency.
Japanese finance officials reiterated their vigilance regarding currency fluctuations while avoiding specifics about potential intervention measures, maintaining market uncertainty.
Trading activity appears subdued as participants await clarity from the BoJ's policy decision and subsequent US inflation data releases later in the session.
Technical Perspective: USD/JPY Approaches Key Resistance Amid Overextended Conditions
From a technical standpoint, the currency pair faces significant resistance near the 156.00 level following its recent advance to the 155.75 area. The extremely overbought daily RSI reading suggests potential for near-term consolidation or pullback, warranting caution for those considering new long positions.
On the downside, initial support appears around 155.30-155.35, with more substantial buying interest likely emerging near the psychological 155.00 mark. A break below the 154.70 area - previously acting as resistance - could open the door for a test of the 154.00 level, potentially extending toward last week's low near 153.60 if selling pressure intensifies.
