USD/JPY looks vulnerable near YTD low at mid-year 140.00 ahead of Fed/BoJ meetings this week

• USD/JPY remains near YTD low amid divergent Fed-BoJ policy expectations.
• Bears may refrain from placing new bets ahead of this week’s central bank risks.
• The Fed will announce its decision on Wednesday, followed by the BoJ update on Friday.

The USD/JPY pair remains depressed in the mid-140.00s during the Asian session on Monday amid light trading volumes on the back of a holiday in Japan and looks vulnerable near the YTD low hit last week. However, bear traders may prefer to wait for the key risks of this week’s central bank event before positioning themselves for any further downside moves.

The Federal Reserve (Fed) is scheduled to announce its decision at the end of a two-day meeting on Wednesday, which will be followed by the Bank of Japan’s (BoJ) policy update on Friday. Meanwhile, divergent Fed-BoJ policy expectations led to the recent sell-off in the Japanese yen (JPY) and continues to exert downward pressure on the USD/JPY pair.

Markets began pricing in a higher chance of a 50 basis point (bps) rate cut by the US central bank after last week’s US CPI and PPI report showed signs of easing inflationary pressures . In contrast, recent dodgy remarks by BoJ officials have reaffirmed market bets that the Japanese central bank will announce another interest rate hike by the end of this year.

This, in turn, suggests that the path of least resistance for the USD/JPY pair remains to the downside and supports the prospects for an extension of a well-established downtrend seen over the past two months or so. That said, a generally positive risk tone could cap any meaningful gains for the safe-haven JPY and prevent bulls from placing new bets in the absence of any relevant macro data.