Japanese Yen edges higher vs bullish USD amid expectations of a more hawkish BoJ

The USD/JPY currency pair experienced a decline on Thursday, following a three-day winning streak and erasing gains previously achieved. The pair is currently trading around the 156.00 mark, with the Bank of Japan's (BoJ) upcoming rate decision on Friday becoming the primary focus. Market expectations are that the BoJ will raise its benchmark interest rate by 25 basis points to a 31-year high of 1.25% during the September policy meeting.

Moreover, traders are pricing in a higher probability of an additional rate hike in December due to inflation concerns stemming from rising energy prices. This factor is expected to bolster the Japanese Yen (JPY) and put downward pressure on the USD/JPY pair. Simultaneously, the US Dollar (USD) reached its highest level since late July following the US Federal Reserve's (Fed) hawkish stance on interest rates.

The Fed raised borrowing costs for the first time in over three years, with the dot plot indicating further interest rate increases for the year. Additionally, oil-related inflation fears are contributing to expectations of continued Federal Reserve tightening, which supports the USD and the USD/JPY pair. Geopolitical tensions, particularly the escalating Middle East situation, have also played a role in favoring the USD and limiting downside risks for the USD/JPY pair.

The pair remains bearish in the near term, trading below the 156.60-156.65 support zone, which includes the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 50.0% Fibonacci retracement level. Further support can be found at the 61.8% level at 157.55 and the 78.6% retracement near 158.81, with a deeper pullback exposing the structural floor around 152.91.