The USD/JPY pair surged sharply after the Bank of Japan held interest rates steady. However, analysts at Danske Bank and Société Générale continue to expect a long-term decline. Despite short-term gains, safe-haven appeal and renewed domestic inflows suggest the yen could strengthen over the next 12 months. While BoJ policy remained unchanged, market reaction and evolving global risks maintain a cautious yen outlook.
How Long Will Short-Term Gains Last in the USD/JPY Pair?
The Bank of Japan’s widely anticipated decision to keep rates unchanged at 0.5%. This is one of the factors contributing to the USD/JPY pair’s increase. In addition, Governor Kazuo Ueda’s comments regarding U.S. tariffs further tainted Japan’s economic outlook. He is indicating longer timeframes for achieving inflation targets. The BoJ expects CPI to stay close to its 2% target through the financial year 2027, indicating that core inflation is still low.
The reduced growth projections for 2025 and 2026 strengthened market prudence despite this sudden spike in the USD/JPY pair. Currently, overnight index swaps indicate a mere 34% probability of another rate hike this year. As inflationary pressures are outweighed by economic uncertainty, this change in expectations relates to larger BoJ policy strategies.
Can Global Trends Sustain Yen Strength?
According to analysts at Danske Bank, the yen’s strength is no longer solely being driven by lower interest rate differences. Japanese assets are gaining traction, with Ministry of Finance data showing increased net investment inflows, particularly post-‘Liberation Day.’ This trend underlines renewed foreign confidence in the yen amid global volatility.
BoJ policy direction continues to influence the market as uncertainties surrounding U.S. tariffs keep the yen outlook stable. According to Société Générale, the JPY’s safe-haven status means that its appreciation is likely to continue even in the face of short-term positioning risks. The yen is still one of the G10’s few strong currencies, along with the Swiss franc.
Is the USD/JPY Pair on Track for 146?
The USD/JPY pair appears to be following an ABC correction higher. Looking at the daily chart, the pair is approaching last week’s high. It suggests a potential pullback may be on the horizon. However, a break above this high would signal a continuation towards 145. The USD/JPY pair will reach the 146 mark if it can break above that level. It is aligning with the weekly VPOC (Volume Point of Control) and trend resistance levels.
The USD/JPY 1-hour chart shows that the pair has reached the daily R2 pivot and is nearing last week’s high (LW high). The RSI (14) is also in the overbought zone. It is signaling that these are not ideal levels for new long positions at the moment. Bulls may watch for indications of a go low near the daily R2 or the 143.24 high if prices retrace lower.
If the USD/JPY pair continues its upward trajectory, we could see the dollar strengthen further. However, risks still exist, especially if unexpected volatility results from changes in BoJ policy or from broader market conditions. The USD/JPY pair may be in a position for future gains if the bullish trend persists over the long run.
Yen Could Strengthen Despite Short-Term USD/JPY Gains
The USD/JPY pair has shown short-term bullish momentum, but the underlying sentiment is still negative. Future appreciation is still possible as long as domestic investment inflows and safe-haven demand support the yen outlook. The yen is probably going to find support as long as uncertainty endures because BOJ policy is still data-dependent and global risks are not resolved.
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