The USD/JPY pair is trading with mild losses near 152.75 during the early Asian session on Tuesday. Nonetheless, the potential downside might be limited by optimism surrounding a potential US-China trade deal.
Traders will be closely monitoring the Federal Reserve (Fed) interest rate decision scheduled for Wednesday. On Thursday, two major events are set to capture market attention: the Bank of Japan (BoJ) interest rate decision and the meeting between US President Donald Trump and Chinese President Xi Jinping.
The US and China have reached a preliminary agreement aimed at preventing a new round of tariffs and ensuring the continued flow of critical rare earth mineral supplies from China to the US. On Monday, President Trump expressed optimism about the deal, stating, “I really feel good” after officials unveiled a series of agreements intended to ease ongoing trade tensions. The upcoming Thursday meeting between Trump and Xi Jinping will focus on deciding the framework of the trade deal.
Positive developments in defusing trade tensions could boost risk appetite among investors and put downward pressure on safe-haven currencies such as the Japanese Yen (JPY).
The Federal Reserve is widely expected to cut interest rates by 25 basis points (bps) at its meeting ending Wednesday. This would mark the second rate reduction of the year, lowering the Federal Funds Rate target range to 3.75% to 4.00%. Most economists anticipate additional rate cuts later this year and into 2026.
On the Japanese Yen front, expectations that Japan’s new Prime Minister, Sanae Takaichi, will maintain expansionary fiscal policies and resist early monetary tightening may weigh on the JPY, providing a tailwind for the USD/JPY pair. Reports indicate that Takaichi may announce a major stimulus package as soon as next month, potentially surpassing last year’s 13.9 trillion Yen program designed to ease inflationary pressures on households.
Regarding the Bank of Japan, the central bank is broadly expected to hold its interest rate steady at 0.5% during its policy meeting on Thursday. However, traders will be paying close attention to the guidance from BoJ Governor Ueda following the meeting, looking for fresh impetus that could influence market sentiment.
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