The USD/JPY pair has reacted weakly to the de-escalation of the Middle Eastern conflict. Despite the overall weakening of the US dollar, the pair has only decreased by 30 pips, updating the local low from Monday at 159.75. However, just a few hours after reaching that level, USD/JPY buyers regained all the positions they had lost. The pair has returned to the 160 level.

It is noteworthy that this situation has developed ahead of the announcement of the Bank of Japan's June meeting results. The overwhelming majority of analysts believe the central bank will raise the interest rate by 25 basis points on Tuesday, despite slowing inflation in Tokyo and nationwide.

One might assume that the market has already priced in a hawkish outcome from the June meeting, which is why the "buy the rumor..." strategy has effectively lost its relevance. Especially since the likelihood of a hawkish scenario rose significantly last spring: at the conclusion of the April meeting, three members of the Bank's board called for an immediate policy tightening.

However, in my opinion, such an obvious explanation does not reflect the full complexity of the situation.

Firstly, inflation dynamics still work against the yen, which does not provide grounds for expecting an aggressive cycle of monetary tightening. As mentioned earlier, core inflation is showing signs of slowing in both the metropolitan area and nationally. The core consumer price index in Tokyo (excluding fresh food) increased by only 1.3% (year-on-year) in May, following a 1.5% rise the previous month. This indicator has shown a downward trend for the sixth consecutive month, falling significantly below the BoJ's target level. The national figure is also losing momentum. In April, Japan's core CPI slowed to 1.4% year-on-year, down from 1.8% the month prior. Meanwhile, the Core-Core CPI, excluding both food and energy, dropped to 1.9% year-on-year, marking its lowest value in nearly two years.

This is the most important point—if the BoJ were to raise interest rates amid accelerating inflation, investors could anticipate a series of consecutive hikes. This would create sustainable support for the yen. However, the current situation is different: the central bank is forced to raise rates in a context of decelerating inflation, both nationally and in the capital. Furthermore, the central bank is likely to emphasize the gradual nature of further actions. Therefore, the market will likely interpret the June hike as a one-off continuation of monetary normalization, rather than the beginning of an aggressive tightening cycle. Traders will reach a reasonable conclusion that the central bank's future actions will be marked by extreme caution.

Moreover, the interest rate differential between Japan and the US will still remain quite significant. Even after a rise to 1.0%, the Japanese rate will remain substantially lower than the American rate, maintaining the attractiveness of carry trade operations and limiting demand for the yen.

Another argument supporting a "dove hike" from the BoJ following the June meeting is Kazuo Ueda's hospitalization for a liver cyst infection, which means he will miss the meeting. This is the first time since 1998 that the head of the BoJ will be absent from a scheduled meeting.

The powers of the acting head of the central bank are distributed among two of his deputies. The meeting will be chaired by his deputy, Ryozo Himino (if board members' votes are evenly split, he will have the deciding vote). The traditional summary press conference following the rate decision will be conducted by the other deputy, Shinichi Uchida.

On the one hand, the temporary absence of the head of the central bank will not disrupt plans to raise interest rates, as consensus within the board has already formed. On the other hand, the governor's absence is significant not so much regarding the decision itself as regarding communicating the central bank's future intentions. In Ueda's absence, his deputies are likely to prefer the most neutral, cautious, and "safe" phrasing, resulting in the market receiving less clear signals about the pace of further monetary normalization. Excessive caution in his deputies' rhetoric may be perceived by the markets as an indirect signal of a softening stance.

Thus, the prevailing fundamental backdrop suggests that the BoJ will likely implement a "dove hike" scenario at the June meeting. In other words, the increase in the rate will be a one-time, "normalization" action and will not mark the beginning of a sustained tightening cycle.

All this indicates that southern price impulses for the USD/JPY pair are advisable to use as reasons to open long positions, while securing profits around the support level of 160.50 (the upper Bollinger Bands line on the D1 timeframe), where the risk of currency intervention by Japanese authorities increases.