USD/JPY is trading nearly one figure higher this morning following the BoJ's widely expected decision to hold policy steady, Danske Bank's FX analysts report.

JPY still a safe haven as policy uncertainty supports demand

"With downward revisions to both growth and inflation forecasts amid greater economic uncertainty, the overall message from the BoJ was dovish. Markets now price in just 8bp of tightening for the remainder of the year, down from 16bp prior to the meeting. We expect the BoJ to stay on its policy normalization path, albeit contingent on the global trade conflict having only a limited impact on the domestic economy."

"Narrowing rate differentials are no longer the sole driver of a bearish USD/JPY view. With the relative attractiveness of US assets declining, Japanese assets have seen renewed interest, as reflected in Ministry of Finance data showing a notable increase in net investment inflows since 'Liberation Day'."

"Moreover, while recent developments suggest some de-escalation, the JPY continues to benefit from elevated economic policy uncertainty and remains, alongside the CHF, one of the few true safe havens in the G10 FX space this year. The main risk to further JPY appreciation is stretched long positioning. We forecast USD/JPY to gradually trend lower toward 130 over the next 12M."