USD/JPY strengthened on risk-off sentiment ahead of the FOMC meeting and improved to near 150.30.

• USD/JPY expanded its gains due to risk aversion ahead of the FOMC meeting.
• The U.S. Federal Reserve is not expected to cut interest rates in March or May.
• Japanese official Atsushi Mimura said the government was communicating with other countries regarding FX intervention.

USD/JPY has been strong for three consecutive trading days thanks to the strength of the US dollar (USD). The rise can be attributed to market sentiment biased toward the possibility that the Federal Reserve may refrain from cutting interest rates at its scheduled meetings in March and May. This sentiment was further strengthened by strong data on consumer and producer prices released last week. The USD/JPY pair trades higher around 150.30 during the early European session on Tuesday.

ANZ predicted that the Federal Reserve (Fed) could begin the interest rate reduction cycle in July, mid-summer. There is a 53% chance the U.S. Federal Reserve will cut interest rates by 25 basis points at its June meeting, according to the CME FedWatch Tool.

The US Dollar Index (DXY), which measures the value of the US dollar against a basket of six other major currencies, ended its fourth straight day of declines. DXY is trading higher at around 104.30 with the 2-year and 10-year U.S. bond coupons yielding 4.64% and 4.29%, respectively, at the time of this writing.

Meanwhile, Japanese Finance Ministry official Atsushi Mimura said Tuesday that the government is “continuously communicating and coordinating with other countries regarding foreign exchange intervention.” He emphasized the importance of maintaining safety and securing liquidity in managing foreign exchange reserves. Mr. Mimura mentioned that if the government determines that intervention is necessary, it can sell assets such as deposits or foreign bonds to use foreign exchange reserves.

Moreover, Finance Minister Shunichi Suzuki said that while a weaker yen has both advantages and disadvantages, he expressed greater concern about the negative impact of a weaker currency. Governor Suzuki also mentioned in a previous interview that “the Bank of Japan (BoJ) has jurisdiction over monetary policy.” But there will come a time when interest rates rise,” he said.

Market participants are expected to watch trade balance data on Wednesday along with January import and export figures. Additionally, focus will shift to the Federal Open Market Committee (FOMC) minutes.