USD/JPY drops on Fed uncertainty, BoJ policies

The dollar fell against the yen on Tuesday as investors continued to avoid the greenback ahead of the release of the Federal Reserve's March meeting minutes on Wednesday, while a Bank of Japan decision to leave policy unchanged bolstered the Japanese currency.

In U.S. trading, USD/JPY was down 1.11% and trading at 101.95, up from a session low of 101.90 and off a high of 103.12.

The pair was expected to test support at 101.72, the low from March 27, and resistance at 104.12, Friday's high.

The yen rose against the dollar and most currencies after BoJ Governor Haruhiko Kuroda indicated that the bank was unlikely to implement further stimulus measures at present. He added that growth and inflation were likely to continue to pick up in the coming months despite a sales tax increase in April.

Earlier Tuesday, the BoJ voted to keep its key policy target of increasing base money unchanged at an annual pace of ¥60 trillion to ¥70 trillion after ending its two-day policy meeting.

Meanwhile, the dollar continued to slide as investors avoided the U.S. currency ahead of Wednesday’s minutes of the Fed’s March meeting.

Last week’s U.S. March jobs report came in slightly below expectations, which unraveled investors, as Fed Chair Janet Yellen has said slack labor markets will call for accommodative policies to stay in place for some time.

Elsewhere, emerging-market currencies rose across the board on sentiments that even though the Federal Reserve will continue to unwind its bond-purchasing program this year, policy will remain loose and make higher-yielding currencies more attractive.

The yen, meanwhile, was up against the euro and up against the pound, with EUR/JPY down 0.72% at 140.65, and GBP/JPY trading down 0.28% at 170.73.

The euro saw some support after European Central Bank officials on Monday stressed that while fresh easing measures may be needed to steer the euro zone away from deflationary pressures, implementation of such tools is not imminent.

Last week the ECB left the door open to further stimulus measures, saying that unconventional monetary policy instruments may be necessary to avert the risk of ongoing low inflation in the euro zone.