• The USD/JPY pair weakened to nearly 146.05 early in Thursday’s Asian session, down 0.45% on the day.
• The BoJ’s summary of views from its July meeting said some members suggested a neutral interest rate of at least 1%.
• Markets continue to factor in a 50 basis point rate cut by the Federal Reserve in September.

The USD/JPY pair is hovering around 146.05 after retreating from a weekly high of 147.90 during early Asian trading on Thursday. The pair’s decline is largely supported by a weaker US dollar (USD) and safe-haven flows. Traders are looking to the weekly US Initial Jobless Claims on Thursday for fresh impetus. This report could confirm the economic and labor market situation in the United States.

The Bank of Japan’s (BoJ) summary of its monetary policy meeting on July 30 and 31, released on Thursday, showed the Japanese central bank is preparing the ground for further normalization of policy, although members did not specify a timeline or pace. BoJ members suggested a neutral rate of at least 1% as the medium-term target. Board members also noted that they expected the modest escalate would not have a tightening effect.

On Wednesday, BoJ Deputy Governor Uchida said: “I believe the bank needs to maintain monetary easing at the current policy rate for now, given that developments in financial and capital markets at home and abroad are extremely volatile.” Uchida suggested the BoJ would not raise rates if markets were volatile. Dovish comments from Japanese authorities are likely to weaken the JPY for now. The BoJ is expected to raise rates by only 15 basis points (bps) over the next 12 months, down from 50 bps expected just after its hawkish hike.

Meanwhile, rising geopolitical tensions in the Middle East could boost sheltered haven currencies like the JPY. Al Arabiya news agency reported that US officials believe a response from Hezbollah and Iran is imminent, with initial assessments predicting an attack earlier this week, but recent intelligence has indicated that the response could be delayed until Thursday or Friday.

Growing bets on US interest rate cuts in September could put some selling pressure on the US dollar. According to CME’s FedWatch Tool, interest rate markets have priced in about an 83% chance of a 50 basis point (bps) Fed rate cut in September, with two more cuts expected by the end of 2024.