USD/JPY Rebound Hinges on Fed and BoJ Policy Decisions

The USD/JPY pair has been rebounding in recent days due to rising US bond yields and elevated oil prices, shifting market focus towards inflation and a potential more hawkish Fed rate hike.

Investors have been focusing on the yield differential between US rates and other countries, which remains a significant headwind for major FX pairs like EUR/USD, CHF/USD, and JPY/USD. However, the prospect of a hawkish Bank of Japan has kept a lid on the dollar's gains against the yen.

The market is now finely balanced ahead of the Fed and BoJ policy events. If oil prices continue to rise and Treasury yields remain elevated, the USD/JPY forecast could regain a more decisive bullish bias. A 25-basis-point rate increase by the Fed is fully priced in, but the focus will be on what policymakers signal about the path beyond today's decision.