**USD/JPY Outlook: Yen Struggles as BOJ Holds Policy Steady and Dollar Strengthens**
*Originally reported by Mitrade News Team.*
The Japanese yen has faced significant volatility in recent sessions, primarily driven by a combination of dollar strength and the Bank of Japan’s (BOJ) ongoing commitment to an ultra-loose monetary policy. As the global foreign exchange landscape reacts to central bank actions and macroeconomic data, the USD/JPY pair continues to capture trader attention. Below is a comprehensive analysis of the current situation and the possible scenarios ahead for USD/JPY.
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## Market Recap: Yen Weakness and BOJ Policy
After a period of relative stability, the yen has depreciated sharply against the US dollar. In recent trade, the USD/JPY pair surged, breaching key resistance levels to reach highs not seen since late 2022. This breakout reflects both external and domestic drivers:
– **BOJ’s Policy Stance**: Despite some market speculation about an early tightening, the BOJ reaffirmed its commitment to extremely loose monetary policy. The central bank voted to keep short-term rates at -0.1 percent and maintain yield curve control (YCC) measures, targeting the 10-year Japanese government bond (JGB) yield at around zero percent.
– **Inflation and Growth**: While Japanese inflation data has occasionally exceeded BOJ targets, policymakers cite fragile real wage growth and uncertain domestic demand as reasons not to move prematurely. Core CPI remains slightly above 2 percent, but the BOJ doubts the sustainability of these levels without robust demand-side contributions.
– **Verbal Intervention**: Japanese authorities have issued sharp warnings about “excessive moves” in the currency and threaten intervention should the yen decline become disorderly. However, FX traders remain skeptical that actual intervention is imminent considering the relative interest rate differentials.
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## Dollar Strength: US Data and Fed Policy
Citywide, the greenback’s strength remains underpinned by resilient US economic data and the Federal Reserve’s hawkish guidance. This environment favors USD strength versus low-yielders like the yen.
– **US Economic Surprises**: American labor market and retail sales figures have consistently beaten consensus, prompting upward revisions to GDP forecasts. While inflation remains slightly above the Fed’s target, market expectations for rate cuts have shifted towards later in the year or even into the next.
– **Yield Differentials**: US Treasury yields remain elevated relative to their global peers, particularly Japan. This significant yield spread incentivizes carry trades, whereby investors borrow yen at very low rates to invest in higher-yielding US assets.
– **Fed Minutes and Communication**: Recent FOMC minutes revealed policymakers’ ongoing concerns about inflation persistence and a general hesitancy to deliver rate cuts unless the data further supports such actions.
These factors combined have sent the dollar index (DXY) to multi-month highs and set the tone for aggressive dollar-buying—directly impacting USD/JPY.
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## Technical Analysis: USD/JPY Breaking Out
From a technical standpoint, the USD/JPY rally has caught many traders’ attention. Key charts and momentum indicators reveal:
– **Break Above Resistance**: The pair cleared previous resistance at the 145.00 level, paving the way for further advances. Bulls have targeted the next psychological levels at 147.00 and 150.00.
– **Momentum Indicators**: Daily RSI readings have moved into overbought territory, but without a clear reversal pattern, some technicians see scope for further gains before a meaningful pullback.
– **Moving Averages**: The 50-day and 200-day moving averages both slope upwards, indicating a strong uptrend. Pullbacks towards these averages have been met with active buying, cementing the bullish bias.
Support levels now cluster around 145.00 and 142.50, while resistance looms at 148.00 and above.
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## Fundamental Risks and Scenarios
The outlook
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