USD/JPY surges above the 140.20 mark as investors await the BoJ rate decision

• USD/JPY gains traction above the 140.20 mark on Friday. 
• The Federal Reserve (Fed) is expected to raise interest rates by 25 basis points (bps) next week.
• Bank of Japan (BoJ) policymakers will likely maintain the easy-money policy. 
• Investors await the BoJ interest rate decision scheduled for next week.

The USD/JPY pair attracts some follow-through buying and advances above the 140.20 area heading into the European session on Friday. The monetary policy divergences between the ultra-loose monetary policy of the BoJ and the resumed tightening policy of the Fed dragged the Japanese Yen lower against its major rivals.

The weekly data published by the US Department of Labour (DOL) showed on Thursday that Initial Jobless claims totaled 228,000 in the week ending July 15, against the expectation of 242,000 and lower than 237,000 prior. The figure showed the lowest reading since mid-May. Meanwhile, the Philadelphia Federal Reserve Manufacturing Survey came in at -13, versus the consensus of -10. While Existing sales from June also showed a contraction of 3.3% MoM in June against a 0.2% prior gain.

That said, the Federal Reserve (Fed) is expected to raise interest rates by 25 basis points (bps) next week. However, the possibility of an additional rate hike before the end of the year increased after the latest report. This, in turn, boosts the US Dollar across the board.

On the Japanese Yen front, Japan’s trade balance unexpectedly flipped to its first surplus since July 2021, easing pressure on the economy's recovery. The Japanese trade surplus came to ¥43 billion. Market consensus had forecast a ¥46.7 billion deficit. Additionally, June's National Consumer Price Index (CPI) rose from 3.2% to 3.3% YoY, versus 3.5% expected.

Bank of Japan (BoJ) Governor Kazuo Ueda is likely to maintain the easy-money policy even though market participants expected an exit from the ultra-loose monetary policy and a tweak to BoJ's Yield Curve Control (YCC) policy. This, in turn, led to the weakening of the Japanese Yen against its major rivals due to monetary policy divergences.

Investors are now focusing on the Bank of Japan's (BoJ) interest rate decision scheduled for next week. BoJ Governor Kazuo Ueda is expected to maintain a dovish policy stance in order to keep inflation steady at approximately 2%.