The differential in policy stance between the United States and Japan suggests a further weakening of the USD against the JPY, or at least a range bound on the USDJPY. From a fundamental point of view, we start to see the United States adopting a less hawkish tone in response to its slowing inflation data. On the contrary, Japan is gradually pivoting away from its ultra-loose monetary policy as its inflation data continues to trend higher, which is at its 41-year high.

The Bank of Japan is approaching a significant policy change. Kazuo Ueda is set to become the next governor of the Bank of Japan, succeeding the current "dove" Haruhiko Kuroda. Current governor Kuroda was first appointed in March 2013. He has led the central bank’s ultra-dovish monetary policy, including maintaining a negative interest rate since 2016 – even as global peers have been hiking to tackle inflation. His current five-year term will end on April 8. Analysts expect gradual policy normalization under the central bank’s new leadership.

Additionally, with inflation at a 41-year high, Japan is also facing pressure to keep prices in check by pivoting away from an ultra-loose monetary policy.

The USDJPY pair is in a tactical setback since October of last year, following a currency intervention by the Japanese authorities. This trend has been reinforced by a series of events, such as the weakening of the dollar due to slowing inflation in the U.S. and rumors of a slowdown in the Fed rate hike, as well as the unexpected increase in the yield ceiling on 10-year bonds by the Bank of Japan.

Many experts believe that the central bank has only taken the first step towards normalizing monetary policy, and despite Kuroda's denial of this assumption, traders are betting that the regulator will further weaken its control over the yield curve or abandon it altogether.