BoJ Decision in Focus as Traders Eye Policy Signals Amid Political Uncertainty

Key Takeaways:

*The central bank is likely to keep its benchmark rate at 0.5%, with markets eyeing any policy shift that could trigger yen volatility.

*U.S. tariff threats and Japan’s internal political shake-up have softened expectations for further BoJ tightening.

*A breakthrough in U.S.-Japan trade talks may reduce external pressure, potentially paving the way for future rate hikes.

Market Summary:

Markets will closely watch the Bank of Japan’s (BoJ) policy decision during the Tokyo session on July 31, with the central bank widely expected to hold its benchmark interest rate steady at 0.5%—the highest level in 17 years following its departure from ultra-loose monetary policy.

While the hold is broadly priced in, any surprise in the policy statement could spark significant volatility in the Japanese yen. The BoJ had previously maintained a hawkish bias, citing sustained inflation above its 2% target over the past year. However, recent external headwinds—including renewed tariff threats from Washington—have tempered expectations for further tightening.

Domestic political developments have also added to the uncertainty. The ruling coalition’s loss of majority in the upper house has fueled market skepticism over the BoJ’s near-term policy trajectory, as the central bank navigates heightened political risk and policy constraints.

Still, the recent breakthrough in trade negotiations with the U.S.—Japan’s second-largest trading partner—has eased external risks and may give the BoJ more latitude to resume rate hikes in the coming months. A signal toward policy normalization could provide fresh support for the yen, which has been under pressure in recent sessions.

Technical Analysis 

EURJPY, H4

The EURJPY pair has broken below its prior bullish structure, sliding to a two-week low and signaling a bearish trend reversal. The pair has declined by over 1.5% from its recent peak and has breached a critical sideways consolidation range, reinforcing the shift in market sentiment.

Momentum indicators also confirm the bearish tilt. The Relative Strength Index (RSI) is nearing oversold territory, suggesting mounting downside pressure. Meanwhile, the MACD has crossed below the zero line and continues to diverge to the downside—indicating strengthening bearish momentum.

Unless EURJPY quickly reclaims key support levels, the path of least resistance appears lower in the near term.

Resistance Level: 172.05, 173.10

Support Levels: 169.95, 168.75