USD/JPY drops 0.5% as yen strengthens on Bank of Japan policy expectations

USD/JPY has fallen 0.5% to 154.20 as the Japanese yen gains strength amid renewed focus on diverging monetary policies between the Federal Reserve and Bank of Japan. Market participants are increasingly pricing in the possibility of further BOJ policy normalization, with speculation mounting about potential yield curve control adjustments in upcoming meetings. The yen's appreciation accelerated during Asian trading hours, breaking through the key 154.50 support level. Technical momentum indicators suggest further downside potential, with immediate support at 153.80 and resistance now at 154.70. The shift in policy expectations comes as Japanese inflation data continues to exceed BOJ targets, while recent Fed communications suggest a prolonged pause in rate adjustments. Traders are positioning for continued yen strength, particularly if the BOJ signals more hawkish intentions at its next policy meeting.