BoJ Inaction and Fed Surprise Risk Weigh on Japanese Yen

Recent developments have brought relief to Japanese policymakers as energy prices dropped at the start of this week. The decline in energy costs has slowed the upward momentum of the USD/JPY pair, which has been hovering below the 164.00-level since late last week.

The Bank of Japan (BoJ) is expected to keep interest rates unchanged at its next meeting, but market participants are focused on any hawkish signals regarding future hikes. According to Bloomberg, inflation concerns in Japan have negatively impacted Prime Minister Takaichi's popularity.

Despite relatively high poll readings, recent developments indicate that the government's policies have had a negative impact. The government is considering delivering a promised sales tax cut on food to ease inflation pressures and aims to finalize its policy by early August.