JAPANESE YEN SLIDES TO OVER ONE-WEEK LOW AGAINST USD, BOJ/FED MEETINGS IN FOCUS

• The Japanese Yen continues to be undermined by the uncertainty over the BoJ’s policy stance.
• Hawkish Fed expectations underpin the USD and provide an additional lift to the USD/JPY pair.
• Investors now look to the BoJ and Fed policy decisions before placing fresh directional bets.

The Japanese Yen (JPY) remains depressed for the fifth straight day on Monday and weakens further below the 149.00 mark, to over a one-week low against its American counterpart during the Asian session. The Bank of Japan (BoJ) Governor Kazuo Ueda last week offered a slightly bleaker assessment of the economy. This, along with the weaker Machinery Orders data from Japan and the headlines that the BoJ will conduct an unscheduled bond operation this week, undermines the JPY.

The JPY bulls, meanwhile, seem rather unimpressed by the positive outcome from the spring wage negotiations, which should allow the BoJ to exit its negative interest rate policy sooner rather than later. The US Dollar (USD), on the other hand, continues to draw support from expectations that the Federal Reserve (Fed) will stick to its higher-for-longer interest rates narrative to bring down inflation. This, in turn, is seen as another factor that contributes to the bid tone surrounding the USD/JPY pair.

Traders, however, seem reluctant to place aggressive directional bets ahead of this week's key central bank event risks – the BoJ decision on Tuesday, followed by the FOMC policy update on Wednesday. This, in turn, warrants some caution for the USD/JPY bulls and before positioning for any further appreciating move. Nevertheless, the fundamental backdrop suggests that the path of least resistance for spot prices remains to the upside and any corrective slide is likely to get bought into.