• The Japanese Yen builds on the overnight gains against the USD amid geopolitical risks.
• Hopes for an imminent shift in the BoJ’s policy stance further lend support to the JPY.
• Bulls might prefer to wait for the outcome of a two-day FOMC meeting on Wednesday.

The Japanese Yen (JPY) gains positive traction against its American counterpart for the second straight day on Tuesday, dragging the USD/JPY pair to the 147.25 region during the Asian session. President Joe Biden is expected to authorize US military action in the Middle East in response to the drone attack by pro-Iranian militias near the Jordan-Syria border that killed three American soldiers. This raises the risk of a further escalation of geopolitical tensions, which, in turn, is seen as benefiting the JPY's relative safe-haven status.

Meanwhile, the Bank of Japan (BoJ) signaled last week that conditions for phasing out huge stimulus and pulling short-term interest rates out of negative territory were falling into place. Moreover, expectations that another substantial round of pay hikes by Japanese firms could fuel consumer spending and demand-driven inflation should allow the central bank to pivot away from its ultra-loose monetary policy settings. This, to a larger extent, overshadows signs of slowing inflation in Japan and continues to underpin the JPY.