USD/JPY senses barricades around 129.00 as risk-off profile eases, BOJ policy in focus

• USD/JPY has slipped below 128.50 after facing barricades around 129.00 ahead of BOJ policy.
• BOJ Governor might provide a roadmap to exit its long ultra-loose monetary policy.
• Analysts at GS see a further drop in USD/JPY by 3% to 125.00 due to US interest rates.

The USD/JPY pair has faced resistance while attempting to recapture the crucial resistance of 129.00 in the early Asian session. The asset has dropped below 128.50 and is likely to remain on the tenterhooks as investors are awaiting the announcement of the Bank of Japan (BoJ)’s first monetary policy of CY2023.

A recovery move in the S&P500 futures after a marginal sell-off on Monday is portraying that the risk-off impulse is fading away. However, the volatility will remain on Tuesday as United States markets will open after a stretched weekend. Meanwhile, the return on US Treasury bonds has escalated o 3.53%, which could trigger a caution among the market participants.

The US Dollar Index (DXY) is juggling around 102.00 after a recovery move on Monday. The USD Index witnessed a responsive buying action from the market participants but is likely to remain volatile as investors are shifting their focus toward the release of the United States Producer Price Index (PPI) data. The economic data is seen lower as declining gasoline prices have provided space for producers to trim prices of goods and services due to a decline in production costs.

On the Tokyo front, investors are awaiting the BOJ’s policy announcement for fresh cues. A shift in policy stance could be delivered by BOJ Governor Haruhiko Kuroda as the central bank is aiming to exit from its secular-long ultra-loose monetary policy. Japan Chief Cabinet secretary, Hirokazu Matsuno said on Monday, he “expects the Bank of Japan (BoJ) to continue with appropriate monetary policy, taking into account economic, prices and the financial situation.

Over USD/JPY projection, Analysts at Goldman Sachs (GS) anticipate the Yen pair to decline further by suggesting a 3.0% drop, or a fall to just below the 125.00 level. However, the GS also states that the bigger driver of the cross should be US interest rates rather than domestic monetary policy.