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Dollar Edges Higher as Yen Holds Steady Ahead of BOJ Decision

The U.S. dollar edged higher on Tuesday, while the Japanese yen traded in a narrow range, as investors turned their focus toward the Bank of Japan’s (BOJ) upcoming interest rate decision. With expectations for a cautious policy stance from Japan’s central bank, currency markets remained relatively stable, though sentiment leaned in favor of the greenback.

The dollar index, which tracks the U.S. currency against a basket of major peers, firmed modestly in early trading. This comes as traders continue to digest recent data pointing to resilience in the U.S. economy, reinforcing the view that the Federal Reserve may maintain a higher-for-longer rate path. Reuters

Yen Awaits Clarity on BOJ’s Next Move

Meanwhile, the yen remained steady near 157 per dollar, as market participants awaited signals from the BOJ on whether further tightening could be on the table. Analysts widely expect the central bank to maintain its current policy rate but are watching closely for forward guidance or subtle shifts in tone that could indicate a more hawkish tilt later in the year.

The yen has struggled to regain significant ground in recent months amid a stark contrast in monetary policy between Japan and the United States. While the Fed has remained restrictive to combat inflation, the BOJ has only recently begun moving away from its ultra-loose stance. Econotimes

Divergence in Central Bank Policy in Focus

This divergence continues to underpin dollar strength, with rate differentials favoring the greenback. The yield on U.S. Treasuries remains elevated, attracting foreign capital and adding pressure on lower-yielding currencies like the yen.

Still, the BOJ’s policy path remains a key variable for currency traders. Any indication that the bank is preparing to accelerate normalization efforts could spark volatility in the yen and broader forex markets. FXSTREET

Outlook: Eyes on Policy Statement and Governor's Tone

Investors are now closely watching not just the policy decision, but also the accompanying press conference by BOJ Governor Kazuo Ueda. A more assertive tone on inflation risks or wage growth could lift the yen, while continued caution may see further dollar gains.

Until then, the dollar remains well-supported, with currency markets firmly in wait-and-see mode ahead of the BOJ’s next policy step.

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