Ahead of the BoJ's policy meeting, the market has priced in a 0.25-percentage-point rate hike, while some market participants believe USD/JPY could test ¥159 in the short term.
In the Tokyo market, expectations are building that the BoJ will raise its policy rate by 0.25 percentage points to 1.25% at this meeting, while USD/JPY is trading in the ¥156 range. As expectations ahead of the decision have been priced in, the yen has weakened modestly.
Some market participants believe USD/JPY could test ¥159 in the short term, shifting investors' focus away from whether rates will be raised and toward the Governor's future policy signals at the press conference.
While the dollar's strength and the yen's weakness have gained traction following the Fed's rate hike, institutions including Wells Fargo and Citigroup have expressed concern that the BoJ could respond in a relatively dovish manner.
Asian currencies are generally under pressure, while the dollar index remains elevated. Depending on indications of further BoJ rate hikes and developments at other central banks, the yen could fluctuate in the short term.