Bank of Japan Faces Policy Uncertainty Amid Political Turmoil and Inflation Shifts

The Japanese yen remains weak against the U.S. dollar amid uncertainty over the Bank of Japan's (BoJ) timing and pace of interest rate hikes, with traders awaiting the BoJ's upcoming policy decision expected to maintain rates at 0.5%. Japan's core inflation has slowed to its lowest pace since November 2024, adding to reasons for the BoJ to delay tightening despite sticky inflation and political instability following Prime Minister Shigeru Ishiba's resignation. The U.S. dollar has strengthened due to a less dovish Federal Reserve stance, with Fed Chair Jerome Powell emphasizing a cautious approach to future rate cuts. Market sentiment is influenced by trade uncertainties, domestic political changes, and the BoJ's cautious tone expected in its policy announcement. Meanwhile, Asian currencies show mixed reactions, with the yen consolidating gains amid cautious investor sentiment ahead of the BoJ decision. Overall, the yen's direction hinges on BoJ signals, U.S. monetary policy, and geopolitical factors.