The USD/JPY currency pair edged lower on Tuesday, holding within a tight daily range, as investors awaited the minutes from the Federal Reserve’s December meeting, to be published later in the day, which may provide clues over monetary policy trajectory.
The Fed lowered its federal funds rate target range by 25 basis points to 3.50%-3.75% at its December meeting. But, the vote was divided, as three FOMC members continued to vote against the rate reduction.
Fed Chair Jerome Powell has not offered any guidance on the timing of the next rate cut.
FOMC policy makers signaled just one 25 bps rate cut for next year, while investors continue to expect two or three rate cuts of 25 basis points each.
Markets are now pricing in about a 50% chance for the first cut to occur in March.
Meanwhile, the Bank of Japan’s December Summary of Opinions added to investor expectations of continued policy tightening in 2026.
At its December meeting, the BoJ lifted its policy rate to 0.75% from 0.50%. The Summary of Opinions, released Monday, showed some board members saw room for additional rate hikes soon, which provided certain support to the Yen and weighed on the USD/JPY pair.
The Summary also revealed that a weaker Yen and higher long-term yields were partly due to the BoJ’s policy rate being low relative to inflation. Therefore, markets now expect the central bank to continue normalizing policy.
The USD/JPY currency pair was last down 0.11% on the day to trade at 155.86.
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