On Monday, July 28, the Bank of Japan will be under the spotlight ahead of its interest rate decision on Thursday, July 31. The Bank will announce its Japanese Government Bond (JGB) purchases, which could influence yields and USD/JPY trends.
The BoJ’s JGB purchases play a key role in dampening Japanese Government Bond yields. Buying JGBs cools long-term interest rates, lowering yields. Falling yields would reduce the return on Yen-denominated assets, weakening foreign demand. Reduced capital inflows would soften the yen, driving USD/JPY higher.
Monday’s numbers precede the BoJ’s interest rate decision and the release of its latest forecasts, potentially crucial for near-term USD/JPY trends. The US-Japan trade deal fueled speculation about further BoJ rate hikes. Tokyo’s inflation numbers bolstered bets on an H2 2025 policy move. The so-called core core inflation rate eased from 3.1% in June to 2.9% in July, remaining well above the BoJ’s 2% target.
Later in the session on Monday, the Dallas Fed Manufacturing Index will likely influence US dollar demand. Economists forecast the Index to rise from -12.7 in June to -8 in July. A marked pickup in production and new orders would signal a resilient US economy after upbeat national durable goods orders on Friday. A higher-than-expected reading could send USD/JPY toward the 200-day EMA and the 148 level.
Conversely, a softer print may signal softening demand conditions, pushing the pair toward the 50-day EMA.
Monday’s data precedes the Fed’s highly anticipated interest rate decision on July 30. Fed Chair Powell has faced increased pressure from President Trump to cut rates. A rate cut could raise questions over the Fed’s policy independence, potentially impacting the US dollar.
USD/JPY: Key Scenarios to Watch
Bearish USD/JPY Scenario: Strong JGB purchases, hawkish BoJ cues, or weaker US data. Such factors could send USD/JPY toward the 50-day EMA and expose the 145 level.
Bullish USD/JPY Scenario: Weak JGB purchases, dovish BoJ rhetoric, or strong US data. These may drive the pair toward the 200-day EMA, exposing the 148 level.
