USD/JPY climbs to near 127.80 as DXY steadies, BOJ’s policy in focus

• USD/JPY reaches 127.80 on a bullish open test-drive session.
• The market participants are discounting the neutral stance of the BOJ in its monetary policy meet.
• Some measures for supporting yen are highly expected.

The USD/JPY pair has tested 127.80 in the Asian session as the asset is gradually advancing despite a steady move in the US dollar index. The asset has displayed a bullish open test-drive session on Wednesday. After a minor sell-off at open, the pair rebounded sharply backed by significant bids at 126.94, and displayed a north-sided move to a high of 127.80.

The Japanese yen is displaying broader weakness in the Fx domain as investors are discounting the likely neutral stance to be announced by the Bank of Japan (BOJ) on Thursday. The BOJ is expected to continue with its ultra-loose monetary policy as the growth rate of the economy has yet not reached its pre-pandemic levels. To return at the pre-Covid-19 growth rate levels, the BOJ could announce additional stimulus to pick up the aggregate demand. The Japanese yen has delivered a vulnerable performance in the past few trading sessions therefore, some measures could be taken to support their domestic currency.

Meanwhile, the DXY is oscillating in a narrow range of 102.23-102.40 in the Tokyo session. The DXY is awaiting the release of the Gross Domestic Product (GDP) numbers, which are due on Thursday. A preliminary estimate for the yearly US GDP at 1.1%, advocates an underperformance in comparison with the prior print of 6.9%. While the quarterly GDP is seen at 7.2% against the previous release of 7.1%.