After having dropped from 150.00 to 146.00 levels in early March, it looked like the BOJ finally got the ball rolling in USD/JPY. But amid a combination of more cautious trades and higher Treasury yields, the pair failed to muster much strength in chasing any major downside momentum. Today, the pair is trading at 149.20 now as we look towards the BOJ policy decision tomorrow. So, what's next?

The writing is in the sand already that the BOJ is set to put an end to negative rates tomorrow. Adding to that, it is likely that they will also scrap its yield curve control (YCC) policy. However, they are still to retain bond buying operations and one can expect the statement to also lean more dovishly. That considering the central bank will not want to spook investors with a drastic and major change of narrative at the central bank.

In short, the moves tomorrow can be seen as baby steps for the BOJ to start moving in the other direction. But are these small steps enough to trigger a much stronger rally in the yen currency? There is potential but personally, I'd like to see other market forces corroborate to this story as well.

The thing about USD/JPY shorts or any other shorts in yen pairs is that they are producing a negative carry. And right now, 10-year Treasury yields are still up by some 45 bps so far this year, sitting around 4.30% presently. That's not quite something that will get investors to thinking that they should move their money away from the dollar so quickly.

And if the BOJ is taking just small and prolonged measures in tightening policy, it will take some time for rate differentials to narrow. That is not something that will benefit the yen all too much.

For the yen to crack the code, I reckon it also needs much softer US economic data to follow. That will likely prompt the Fed to cut sooner and that will also show up in the rates market. So, unless we do see Treasury yields start to drop more meaningfully, it may be tough to argue for any steep downside in USD/JPY even as the BOJ looks to act tomorrow.

That being said, the yen does have some good news to work with as we approach the latter stages of March. This is the time when we do see a repatriation of funds back to Japan as the fiscal year-end looks to wrap up. Most of the time, the flows are staggered but it could be a supportive factor for the currency in the final two weeks.

As for the technical perspective, there is also plenty of work for USD/JPY sellers to do. The confluence of the 100 and 200-hour moving averages at 148.01-16 currently is the first area that needs to be broken. That will then establish a more bearish near-term bias.

Following which, the 100-day moving average at 147.59 currently is the next key level to get past. Only then can we start talking about a chase towards its 200-day moving average at around 146.41 at the moment.