Japanese Yen flatlines on US-Iran deal, BoJ rate hike expectations

The USD/JPY pair trades on a flat note near 160.20 during the Asian trading hours on Monday. The US Dollar (USD) softens against the Japanese Yen (JPY) after reports that the United States (US) had agreed to a peace deal with Iran. The Bank of Japan (BoJ) and Federal Reserve (Fed) interest rate decisions will take center stage later this week. 

Reuters reported on Sunday that the US and Iran have agreed on a framework for a deal to end their war, halt the US blockade of Iran, and reopen the Strait of Hormuz. Also, the United Kingdom (UK), France, Germany ‌and Italy stated that the countries were prepared to lift sanctions on Iran in response to steps on its nuclear program. 

Nonetheless, caution lingered as US President Donald Trump said that if Iran failed to reach a final nuclear accord with the US, he would restart military attacks on Tehran. 

"I think we'll see the dollar fall over the course ‌of the next few sessions. We'll probably see some of the risk currencies like Aussie and yen appreciate a little bit. But I don't think we're going to see any huge moves," said Nick Twidale, chief market strategist at ATFX Global in Sydney.

The Fed is likely to keep its key interest rate unchanged at its June policy meeting on Wednesday as it remains in "wait-and-see" mode. Traders will closely watch how new Fed chair Kevin Warsh will lead the US central bank into its next era.

The Bank of Japan (BoJ) is widely expected to raise its benchmark interest rate to the highest level since 1995, undeterred by the absence of its governor. With a hike on Tuesday near fully priced in, markets will closely monitor the timing and pace of future increases. A Reuters poll showed economists projecting the Japanese central bank to raise rates to 1.25% in the fourth quarter (Q4) after a hike in June to 1.0%.