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During Tuesday's Asian session, the USD/JPY pair builds on the overnight late rebound of 70-75 pips from the 140.75 area and obtains some positive momentum. Spot prices are currently trading just above the mid-141.00s and remain within striking distance of last Friday's two-week high.

Despite growing concerns about a global economic downturn, investors' confidence remains buoyed by expectations for additional stimulus. In fact, China's top economic administrator, the National Development and Reform Commission (NDRC), unveiled on Monday new measures designed to promote, encourage, and stimulate private investment in certain infrastructure sectors. The NDRC added that it will increase support for financing private initiatives. This is viewed as undermining the safe-haven Japanese Yen (JPY) and boosting the USD/JPY exchange rate.

The JPY is further pressured by expectations that the Bank of Japan (BoJ) will maintain its dovish posture on Friday at the conclusion of a two-day meeting. In fact, a government spokesperson stated on Monday that Japan's inflation will likely decline to around 1.5% the following year after removing the impact of one-time factors. Masato Kanda, Japan's chief currency diplomat, stated that recent inflation and wage increases exceeded expectations and that the available data supports the likelihood of an upgrade in the BoJ's inflation forecasts. This discourages traders from placing aggressive direction wagers on the USD/JPY currency pair.

In contrast, the US Dollar (USD) consolidates its recent recovery gains from its lowest level since April 2022, which was reached last week, and provides little substantive impetus to the major. Ahead of this week's key central bank event risks, market participants appear reluctant and prefer to remain on the periphery. The Federal Reserve (Fed) is expected to raise interest rates by 25 basis points (bps) when it announces its policy decision on Wednesday. Investors remain sceptical as to whether the US central bank will adopt a more dovish policy posture or maintain its forecast for a 50 bps rate hike by the end of the year.

Consequently, all eyes will be on the attached monetary policy statement and Fed Chair Jerome Powell's remarks at the press conference following the meeting. Investors will seek hints about the Fed's future rate-hike path, which will have a significant impact on the USD's near-term price dynamics. The market's focus will then transition to Friday's BoJ monetary policy update. Together with key US macro releases, such as the Advance Q2 GDP report and the Core PCE Price Index (the Fed's preferred inflation gauge), this will help determine the next leg of the USD/JPY pair's direction.

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