The Japanese Yen faces continued downward pressure following the Bank of Japan’s (BoJ) recent policy decision. The BoJ’s move to end negative interest rates and scrap the Yield Curve Control (YCC) policy has led to a sell-off of the Yen, pushing the USD/JPY pair to a fresh two-week high above the critical 150.00 level.

In its policy statement, the BoJ indicated that monetary policy would remain accommodative for the time being but offered no clear guidance on future policy steps or the pace of normalization. This lack of forward guidance and broad-based strength in the US Dollar (USD) has further weakened the JPY and bolstered the USD/JPY pair.

The decision to raise short-term interest rates and scale back purchases of commercial paper and corporate bonds came after Japanese companies agreed to significant wage increases, and data showed resilient inflation and economic growth in the fourth quarter.

Last week’s hotter-than-expected US inflation data has tempered expectations for aggressive Federal Reserve policy easing, supporting the USD and lifting yields on US government bonds. As a result, traders are now pricing in fewer rate cuts for 2024 and a reduced likelihood of the Fed starting a rate-cutting cycle in June.

From a technical standpoint, a sustained breach above the 61.8% Fibonacci retracement level and the 150.00 mark could signal further upside for the USD/JPY pair, with the potential to target the year-to-date peak around 151.00. Conversely, downside moves are likely to find support near the 149.20 level, with a break below 149.00 potentially shifting the bias in favour of bearish traders.

Overall, traders are cautious ahead of the BoJ’s policy decision and the outcome of the two-day Federal Open Market Committee (FOMC) meeting, with technical indicators suggesting a bullish bias for the USD/JPY pair.

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