• USD/JPY weakens to around 160.25 in Wednesday’s early European session. 
• Fed is set to leave its interest rate unchanged at a target range of 3.50% to 3.75% at the June meeting. 
• BoJ hiked its policy rate by 25bps to 1.00% but gave no strong signal on the timing of the next move. 

The USD/JPY pair loses ground to near 160.25 during the early European trading hours on Wednesday. Traders prefer to wait on the sidelines ahead of the US Federal Reserve (Fed) interest rate decision under new Chair Kevin Warsh later on Wednesday. 

The Fed is widely expected to stand pat on the interest rates at its June policy meeting. Traders will closely watch the statement, economic projections, and press conference for more hints about the US interest rate path later this year. 

“The Fed is…likely to signal a neutral bias for monetary policy going forward,” said Erik Weisman, chief economist and portfolio manager at MFS Investment Management.

On Tuesday, the Bank of Japan (BoJ) raised the interest rate by 25 basis points (bps) to 1.0% from 0.75% as expected. This marks the highest level since 1995. The decision came at a time when Japan had been struggling with a weak JPY and inflation that had started to creep up, partly due to the Iran war.

“While the press conference…contained some optimistic signals regarding the outlook for the Japanese economy, it failed to move the needle much regarding market expectations around the timing of the next BOJ policy move,” said Jane Foley, senior FX strategist at Rabobank.

Traders are on alert for any potential intervention from Japanese authorities to shore up the ailing currency. MUFG analysts said the Japanese Yen’s failure to strengthen after the hike keeps pressure on Japanese officials to intervene again.

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