By David Finnerty, Bloomberg Markets Live reporter and strategist

The dollar-yen’s very near-term risks remain skewed towards rising further, but the yen may get a welcome reprieve from the Federal Reserve in two weeks, not the Bank of Japan.

The Japanese currency remains under carry trade pressure. In the short term, that setup won’t change against the greenback until US yields push lower. Moreover, no catalyst for that to happen is likely to emerge from US PCE or employment data, with the numbers predicted to show inflation remains problematic and labor markets are not collapsing.

However, the Fed’s rate decision could easily be a game changer — even temporarily — in coming weeks. That’s because all eyes will be on the latest dot plot with markets not expecting any rate change from the June FOMC meeting. Given economic data since the last dot plot, and recent Fed rhetoric, no one will be surprised if the median dot moves from signaling three reductions in 2024 to one or two.

With traders pricing in ~33bps pf Fed cuts this year, a dot plot signaling just one cut would only give the dollar a limited boost given not much more than one is already factored into pricing. If the dot plot though signals two cuts, given traders’ seemingly never-ending desire to price in policy easing this year, they will rush through the rate-cut door, bashing US yields lower and taking the dollar with it.

When it comes it the BOJ, it appears another rate hike is unlikely next month, considering that Governor Ueda said Monday the central bank will move cautiously to anchor inflation expectations at 2%. While the BOJ may play with its bond-buying program in another attempt to raise the nation’s yields, or signal a rate hike in July, neither of these may have a big enough impact on yield differentials to deter carry traders. The same cannot be said for the Fed decision.