Japanese yen firms ahead of BoJ meeting

The yen strengthened to around 147.5 per dollar on Monday, clawing back part of last week’s losses as markets shifted their focus to the upcoming Bank of Japan policy meeting.

The BoJ is widely expected to leave its benchmark rate unchanged at 0.5%, with policymakers weighing persistent domestic headwinds against rising global risks, including the impact of renewed US tariffs on Japanese exports.

Traders are also awaiting a batch of key economic indicators. Trade data due this week is projected to show exports and imports staying subdued, reflecting weak overseas demand and the drag from global supply chain adjustments.

Inflation figures will be closely watched as well, with core CPI forecast to slow to 2.7% in August—the lowest reading since November 2024. A softer print would reinforce expectations that inflation is gradually easing back toward the BoJ’s 2% target, though officials remain cautious about prematurely signaling further tightening.

Externally, US monetary policy developments continue to play a pivotal role in yen dynamics. The Federal Reserve is expected to deliver a 25 basis point rate cut at its meeting this week, with recent US data pointing to softer labor conditions and muted inflationary pressures. The narrowing yield gap between US Treasuries and Japanese government bonds could provide incremental support for the yen, although the currency remains vulnerable to risk sentiment shifts in global markets.

Trading volumes are likely to remain light on Monday as Japanese investors observe a national holiday, which could contribute to sharper intraday moves. Looking forward, markets will be watching whether Governor Ueda signals any adjustments to the BoJ’s forward guidance, particularly in light of persistent yen volatility and external trade challenges.