USD Slips Against JPY as Risk Sentiment Improves Ahead of Fed and BoJ Decisions

The US Dollar (USD) slipped against the Japanese Yen (JPY) on Monday as risk sentiment improved following the pause in attacks between Washington and Tehran. The USD Index (DXY) remained in negative territory, while US equities moved higher, indicating a more favorable environment for risk assets.

Market participants are now focusing on this week's monetary policy decisions from the Federal Reserve (Fed), scheduled for Wednesday, and the Bank of Japan (BoJ), due on Friday. Both central banks are expected to leave interest rates unchanged, but investors will pay close attention to the tone of policymakers.

A recent statement by Fed Chair Kevin Warsh suggested that forward guidance may not be well-suited to the current policy environment. In Japan, analysts at MUFG note that the BoJ is under pressure to shift its guidance towards a more hawkish stance as the JPY hovers near multi-decade lows.

Strategists at BNY argue that the BoJ needs to signal tightening in financial conditions to manage risks arising from fiscal impulse. They warn that fears are growing over fiscal conditions, and until the central bank gets ahead of expectations, the JPY will struggle.