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BOJ's Gradual Stance Is Weighing on the Yen
Summary:
Although the Bank of Japan is expected to raise interest rates, the pace is likely to be slower and more gradual than market anticipations. The probability of a significant short-term appreciation of the yen is low. Meanwhile, technical analysis indicates a breakout followed by a pullback, suggesting that the yen may continue its upward trajectory in the near term.
Trading
151.200
ENTRY
154.500
TGT
149.800
SL
150.801 -0.246 -0.16%
0
Point
Flat
149.800
SL
CLOSING
151.200
ENTRY
154.500
TGT
Fundamentals
Despite recent market discussions regarding potential Federal Reserve rate cuts, the prevailing yield spread dynamics and specific risks associated with the Japanese yen continue to underpin a bullish outlook for the USDJPY.
First, the U.S. long-term interest rates remain relatively elevated, with the 10-year U.S. Treasury yield oscillating around 4%. This indicates that, in the short to medium term, the interest rate differential between the U.S. dollar and the Japanese yen continues to support the dollar. If any U.S. economic data outperforms expectations or market expectations for rate cuts diminish, an increase in yields would directly drive the USDJPY higher.
Second, the transmission mechanism of Japan's monetary normalization is likely to be slower and more gradual than market expectations: the Bank of Japan (BOJ) has announced plans to begin ETF sales, but the pace of these sales is deliberately designed to be very slow to prevent market volatility (both official and market interpretations emphasize a "gradual" approach). This implies that in the short term, the yen will not experience an immediate sharp appreciation due to BOJ actions, providing a time window for long USDJPY positions.
Third, Japan's political landscape and market sentiment remain uncertain—short-term political noise often depresses the domestic currency rather than immediately favoring a widening interest rate differential. When such events occur, they can temporarily amplify USD buying.
In summary, although market pricing of the Fed's rate cut probability (which would itself suppress the dollar) influences sentiment, the actual yield levels, the gradual approach of the BOJ, and Japan's short-term political and risk premiums collectively create a macro framework conducive to long USDJPY positions.
Technical Analysis
In the 1D timeframe, the USDJPY experienced a strong breakout above the critical resistance level of 151.00 on October 7, thereby expanding the upward potential. Following several consecutive trading sessions of appreciation reaching 153.22, the pair entered a correction phase and retreated to 151.00 today. If the price stabilizes and rebounds from this level, it will form a bullish reversal pattern with a confirmation of a breakout retest, indicating the continuation of the short-term upward trend and opening the path for a secondary rally towards 154.80.
Trading Recommendations
Trading Direction: Buy
Entry Price: 151.30
Target Price: 154.50
Stop Loss: 149.80
Valid Until: October 29, 2025 23:00:00
Support: 151.00, 150.00
Resistance: 153.22, 154.80
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