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BOJ and the Government Struggle to Stabilize the Exchange Rate Through Coordination, and the Japan-U.S. Interest Rate Differential Will Continue to Drive Market Direction
Summary:
The Bank of Japan governor signaled that the path for interest rate hikes remains unchanged, yet the yen struggles to attract buyers; under the uncertainty surrounding the central bank, the yen appears highly vulnerable.
PENDING
155.800
ENTRY
161.060
TGT
152.500
SL
-- -- --
--
Point
PENDING
152.500
SL
CLOSING
155.800
ENTRY
161.060
TGT
Fundamentals
Bank of Japan Governor Kazuo Ueda stated after his first bilateral meeting with Prime Minister Sanae Takaichi that the central bank remains committed to gradually adjusting the pace of monetary easing, signaling its firm intent to raise interest rates.
Kazuo Ueda told reporters after the meeting: “The mechanism where inflation and wages rise in tandem is recovering. Therefore, I explained to the Prime Minister that we are gradually adjusting the scale of monetary easing.”
This meeting comes as investors focus on Sanae Takaichi's stance on monetary policy and await details of the economic stimulus plan to be released this week. Kazuo Ueda stated, “We discussed foreign exchange issues. The central bank will closely monitor its impact on the economy while working closely with the government.” He also emphasized that the Bank of Japan will make appropriate policy decisions based on economic data.
Market Watch: Despite the Bank of Japan's recent “resolute” stance on monetary policy, the yen continues to depreciate. This trend stems from multiple structural factors, policy divergences, and market expectations.
Previously, although Japan's policy interest rates had been raised, they remained at exceptionally low levels. For instance, as of now, the Bank of Japan's benchmark interest rate stands at approximately 0.50%, while major economies like the U.S. maintain significantly higher rates. The yield on 10-year U.S. Treasury bonds has even reached around 4%.
Interest rates directly influence capital flows. When the yield on dollar-denominated assets significantly exceeds that of yen-denominated assets, investors tend to allocate funds toward dollar assets, thereby selling yen and buying dollars.
The interest rate differential between Japan and the U.S. is a key driver behind the JPYUSD's depreciation. Consequently, even though the Bank of Japan appears “resolute,” its policy remains relatively accommodative with low interest rates, making it difficult for the yen to benefit from the interest rate differential advantage.
Technical Analysis
On Wednesday, the USDJPY rally remains intact with an upward bias for the day. A break above the 100% retracement level of 156.05, located between 146.58 and 153.26, would pave the way for testing resistance at 158.85. Currently, as long as the 153.60 support level holds, the outlook remains bullish even if a pullback occurs.
From a broader perspective, the current price action indicates that the corrective pattern originating from 161.94 (2024 high) has completed at 139.87, forming a three-wave structure. The larger uptrend dating back to 102.58 (2021 low) may be poised to resume, with potential to break above the 161.94 high.
On the downside, a break below the 149.37 support level would undermine this bullish outlook and lead to the continuation of the corrective pattern, forming a new wave of decline.
Trading Recommendations
Trading Direction: Buy
Entry Price: 155.80
Target Price: 161.06
Stop Loss: 152.50
Valid Until: December 4, 2025 23:55:00
Support: 154.78, 153.66, 152.88
Resistance: 155.89, 156.78, 158.91
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Master of Economics, 8 years in the financial industry, CFA holder, joined HSBC (Hong Kong) Bank in 2013 after graduating from the University of California, USA in the Investment Research and Markets Department. With years of financial market experience and trading experience, having provided excellent investment advice to many brokerages, entity derivatives importers and clients in Greater China.
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