USD/JPY retraces recent losses around 147.70, focus on central banks policy decisions

• USD/JPY trades higher ahead of the Fed policy decision on Wednesday.
• US Dollar (USD) experienced downward pressure on the possibility of no interest rate hike by the Fed in September.
• Market expectations are leaning towards the BoJ maintaining its accommodative monetary policy stance.

USD/JPY recovers from the losses registered on the previous day, trading higher around 147.70 during the Asian session on Tuesday. The pair is experiencing upward support ahead of the interest rate decisions from the US Federal Reserve (Fed) and the Bank of Japan (BoE).

However, the US Dollar (USD) faced weakening due to the likelihood of the Fed maintaining its current interest rates in the upcoming meeting scheduled for Wednesday. However, the investors turn cautious following the odds of a 25 basis points interest rate hike by the end of the year 2023, which could be attributed to the resilient economic data from the United States (US).

Additionally, Fed Chair Jerome Powell emphasized last month at the Kansas City Fed’s conference in Jackson Hole Symposium that the inflation rate remains too high and the central bank is prepared to tighten more if needed.

Moreover, the investors are pricing in the possibility that the Fed may keep interest rates higher for a prolonged period, which could provide support for the potential of the Greenback. Investors will observe the central bank's statements, seeking any indications or information regarding potential future interest rate trajectory.

The US Dollar Index (DXY) attempts to break its two-day losing streak, trading higher around 105.10. However, US Treasury yields are struggling to recover from the losses seen on Monday, with the yield on the US 10-year bond at 4.30% by the press time. The lower yields are exerting downward pressure on the strength of the Greenback.

On the BoJ side, the central bank has made it clear that it will only consider a shift in monetary policy once local wage and inflation metrics align with their anticipated outcomes.

Furthermore, given the ongoing challenges facing the domestic economy and the additional uncertainties related to the Chinese economic situation, the central bank remains cautious about moving away from its dovish stance.

However, the Japanese Industry Minister Nishimura Yasutoshi shared his perspective on the Bank of Japan's (BoJ) monetary policy. Monetary policy is the responsibility of the Bank of Japan (BoJ) to determine. The policy of using monetary measures to "buy time" will eventually reach its conclusion.

Meanwhile, investors anticipate that the Bank of Japan (BoJ) will persist with its accommodative monetary policy approach.