The USD/JPY pair fell to around 156.30 ahead of the Bank of Japan’s policy decision

• The USD/JPY pair fell with the US dollar trading weaker, as investors look for signs about Trump’s potential full tariff plan.
• Investors expect the Fed to leave interest rates unchanged on Wednesday.
• The Bank of Japan is expected to announce its third decision to raise interest rates.

USD/JPY fell to around 156.30 in the European session on Thursday. The asset faces minor pressure as the US Dollar (USD) trades weakly as investors seek clarity on US President Donald Trump’s tariff plan. The US Dollar Index (DXY), which tracks the value of the dollar against six major currencies, fell, but holds the key support level at 108.00.

Donald Trump has yet to release a full tariff plan, while investors expected he would unveil the structure of tariff increases for all economies on his first day in administration. In the first three days of the Trump administration, he threatened to impose tariffs of 25% on Canada and Mexico and 10% on China, which would take effect on February 1.

Going forward, investors should brace for significant volatility in the US dollar as the Federal Reserve (Fed) will announce its first monetary policy decision of the year on Wednesday. The Fed is certain to announce a pause in policy easing, according to the CME FedWatch tool. Therefore, investors will pay more attention to the Fed’s interest rate guidance and the potential impact of Trump’s economic policies on the economy and monetary policy.

But before that, investors will focus on the US December S&P flash data, which will be released on Friday.

In the Asia-Pacific region, investors are awaiting the Bank of Japan’s monetary policy announcement on Friday. The Bank of Japan is expected to raise interest rates. This will be the third rate hike by the Bank of Japan in the current policy tightening cycle. The Bank of Japan’s hawkish bets accelerated after some officials, including Governor Kazuo Ueda, commented that interest rate hikes would be discussed at the January meeting. “The central bank is currently carefully analyzing the data and will compile the results in the quarterly outlook report, and based on that, the bank will discuss whether to raise interest rates at next week’s policy meeting,” Ueda said.