Dollar Strength Keeps Yen in Check

Key Takeaways:

*The Japanese yen has remained under pressure over the past few days as USD/JPY continue to edge up, driven by a resilient U.S. Treasury yields and temporary improvements in global risk appetite.

*BOJ policy remains largely accommodative, with gradual ETF/REIT unwinding and minor hawkish dissent not sufficient to sharply strengthen the yen.

*Reduced safe-haven demand following the Trump-Xi call and ongoing carry trade dynamics have favored the dollar, keeping USD/JPY elevated.

Market Summary:

The Japanese yen has faced mixed pressures in recent sessions, as domestic policy adjustments, global risk sentiment, and structural market factors interact. The Bank of Japan maintained its short-term policy rate at 0.50% but signaled a gradual unwind of its massive ETF and REIT holdings. While this represents a modest shift toward normalization, the policy stance remains broadly accommodative. Two dissenting BOJ board members favoring a rate hike highlight a small but growing hawkish minority, yet the yen has not gained aggressively as markets interpret the move as gradual rather than a rapid tightening.

Global risk sentiment has also influenced yen movements. The recent Trump-Xi call, which touched on TikTok ownership and trade discussions, temporarily improved risk appetite, reducing safe-haven demand for the yen. Combined with the resilience of U.S. Treasury yields, this environment has supported a stronger dollar, keeping USD/JPY elevated over the past three days. While safe-haven flows occasionally offer temporary support, they have not outweighed the impact of dollar strength and market positioning.

The yen’s long-standing role in carry trades further adds to its short-term sensitivity. Even with hawkish hints from the BOJ, yield differentials between the U.S. and Japan still favor borrowing yen to fund higher-yielding currencies, reinforcing USD/JPY bullishness. Domestic challenges, including weak wage growth and lingering deflationary pressures, continue to cap yen gains, while investors carefully monitor BOJ communications and asset-unwinding pace.

Looking ahead, the yen’s trajectory will be shaped by BOJ guidance on normalization, the evolution of global risk appetite, and relative monetary policy divergence. Traders are likely to focus on U.S. inflation trends, Fed policy signals, and geopolitical developments—including U.S.–China relations—which could sway safe-haven flows and influence short- to medium-term USD/JPY dynamics. For now, the combination of subdued yen strength and resilient dollar support explains why USD/JPY has maintained a bullish tone recently.

Technical Analysis

USDJPY, H4: 

USDJPY is attempting to stabilize above 148.00, with buyers defending support at 147.80. The pair, however, continues to face headwinds near the 148.80 resistance, which has capped rallies multiple times this month. A clean break above this ceiling could drive momentum toward 149.55 and 150.75, while rejection would likely drag price back toward 146.60.

Momentum signals are leaning constructive. The RSI stands at 61, showing bullish momentum without reaching overbought territory. The MACD is positive and rising, supporting the ongoing rebound from recent lows.

Overall, USDJPY is consolidating between 147.80 support and 148.80 resistance. A breakout from this range will likely define the next directional move either continuation higher toward 150.00, or a pullback toward the 146.60 zone if resistance holds.

Resistance level: 148.80, 149.55

Support level: 147.80, 146.60