On Tuesday, June 17, the Bank of Japan will announce the results of its next policy meeting. According to preliminary forecasts, the central bank is expected to leave all monetary policy parameters unchanged, including keeping the interest rate at 0.50%. This is the baseline and most anticipated scenario, and its implementation is unlikely to impact the USD/JPY pair significantly. However, the central bank's outlook and forward guidance could trigger sharp volatility—especially if the BoJ adopts a more hawkish tone than the market currently expects.
Looking at the weekly USD/JPY chart, it's clear that traders remain uncertain about the pair's direction. Since late last month, the pair has been "storming" or, more accurately, swinging back and forth within a very wide price range. Ignoring the upper and lower wicks, we can see the pair trading within a 300-pip corridor between 142 and 145, reacting impulsively to domestic and international news flow.
For instance, early last week, USD/JPY surged to 145.50 after Japanese Prime Minister Shigeru Ishiba unexpectedly criticized the central bank's hawkish plans, warning that another rate hike "could interfere with the government's spending plans." In response to that statement, the yen weakened, allowing buyers to push the pair toward the upper boundary of its broad price channel.
But, as the saying goes, "every cloud has a silver lining." The outbreak of war between Israel and Iran sparked a wave of risk-off sentiment, which in turn strengthened the yen. The sharp rally in USD/JPY was replaced by an equally sharp decline into the 142 zone.
However, traders failed to hold those levels: after bouncing off the local low 142.80, the pair returned to the 144 range and settled into a drift.
Clearly, the outcome of the June BoJ meeting will trigger another burst of volatility, but the question is, is it in favor of USD/JPY bulls or bears?
Recall that after the March rate hike, the BoJ signaled it would monitor inflation and wage growth when considering future rate moves. Recent data suggest inflationary pressures persist. Headline CPI remained at 3.6% (unchanged from the previous month), defying forecasts for a slight decline to 3.4%. The core CPI (excluding fresh food) rose to 3.5%—its fastest pace since January 2023. Meanwhile, the core-core index (excluding energy and food, closely watched by the BoJ) accelerated to 3.0% from 2.9%.
Also noteworthy: the final reading of the manufacturing PMI for May was revised upward. Although it remains in contraction territory, it moved closer to the neutral 50-point mark, rising to 49.4. This index has shown an upward trend for the second consecutive month.
These figures support a more hawkish stance from the central bank, despite the prime minister's earlier criticism. Moreover, Ishiba's comments may have lowered market expectations—meaning that any hawkish signal from the BoJ could strengthen the yen.
Several factors support a hawkish shift:
- Inflation: In early June, BoJ Governor Kazuo Ueda stated that the central bank is ready to hike rates further if there's confidence that core inflation is steadily approaching the 2% target.
- Wages: Recent macro data show rising wages. In May, nominal wages in Japan rose 2.3% month-on-month. Earlier, the country's largest labor union (Rengo) reported that this year's spring wage negotiations resulted in average wage increases of 5.46%—the highest since 1991. This is critical for transitioning to long-term demand-driven inflation.
- Oil Prices: Rising oil prices put secondary pressure on domestic costs, including transportation and logistics—another argument in favor of tighter policy.
Given these factors, the BoJ will likely issue hawkish signals at its June meeting and may suggest that the next rate hike could occur "in the coming months" if current trends continue.
The asset purchase program will likely remain unchanged despite speculation that the BoJ might reduce its quarterly JGB purchases from 400 billion yen to 200 billion yen. While the current pace is expected to be maintained, the bank may hint at a phased reduction in bond purchases.
Such a result could support the yen—even if the central bank formally keeps its monetary policy settings unchanged.
Technical View:
On the D1 timeframe, USD/JPY is currently sitting at the midline of the Bollinger Bands indicator, below the Kumo cloud and the Kijun-sen line, but above the Tenkan-sen line. This reflects persistent uncertainty. If the BoJ adopts a moderately hawkish stance, supporting the yen, bears may launch a "southern offensive" toward support at 142.40 (the lower Bollinger Band on the daily chart), with a potential test of the 141.00 handle to follow.
