Investors Remain Cautious Ahead Of Bank Of Japan Decision, Yen Losses May Be Limited

The yen pared gains on Thursday, boosting USD/JPY as the dollar strengthened following Wednesday’s hawkish Fed holdout. The Federal Open Market Committee (FOMC) kept its benchmark lending rate in the 5.25%-5.50% range for the seventh consecutive time at its policy meeting on Wednesday, as widely expected.

The yen’s downside may be limited as caution prevails ahead of the Bank of Japan’s (BoJ) policy decision on Friday. While the BoJ is widely expected to keep rates unchanged, traders will be watching closely for any announcements that the central bank may reduce its monthly bond purchases.

The U.S. dollar index (DXY), which measures the value of the U.S. dollar (USD) against six major currencies, recovered its recent losses. The recovery can be attributed to the Fed’s hawkish stance. Currently, FOMC policymakers expect only one rate cut this year, down from three projected in March.

The probability of the Fed cutting rates by at least 25 basis points in September fell to 61.5 from 69.4% a week ago, according to the CME FedWatch tool.

Investors awaited Thursday’s release of weekly U.S. jobless claims and producer price index (PPI) for further insight into the state of the U.S. economy.

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