1. Fundamental Analysis
🇺🇸 United States
U.S.–Japan Yield Differential Still Favors USD
• Fed is nearing the end of its easing cycle, keeping the yield spread strongly in the dollar’s favor.

• Market expectations lean toward the Fed maintaining restrictive conditions into early 2026 as they monitor inflation, supporting USDJPY structurally.

Macro Environment Supports Dollar Strength
• U.S. Treasury yields remain elevated relative to Japan’s near zero interest rate posture, sustaining carry trade demand for USDJPY.

Net Impact:
Dollar strength remains the dominant driver, keeping USDJPY supported unless Fed policy unexpectedly turns dovish.

🇯🇵 Japan
BoJ Verbal Interventions Increase
• As the yen approaches 160 per dollar, Japanese authorities have intensified verbal intervention signals, raising the risk of short term JPY strengthening.

BoJ Likely to Stay on Hold (January Meeting)
• Markets expect the BoJ to keep policy unchanged, with the next potential rate hike only around March 2026.

Political Uncertainty Creates Additional FX Volatility
• Japan’s PM signaled an intention to dissolve parliament, adding political uncertainty and influencing BoJ’s room for policy tightening.

Slow Policy Normalization Limits Yen Strength
• BoJ normalization remains slow and politically constrained, limiting chances of a materially stronger yen.
Net Impact:
Fundamentals remain JPY negative, with intervention risks offering only temporary counter moves.

2. Technical Analysis
Trend Structure
• USDJPY remains in a strong medium term uptrend, despite a short term corrective pullback.

• Broader technical structure remains bullish, supported by multi decade high price behavior driven by yield differentials.
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Key Indicators
• Momentum: Still positive in the medium term
• Volatility: Elevated due to BoJ verbal intervention
• Market bias: Buy the dip remains favored within trend
Wave/Pattern Structure
• The pair is correcting from recent highs but remains well within its broader bullish wave, with further upside possible once the correction stabilizes.


Key Support Levels
• 156.05 → Primary corrective support; buy limit zone

• 155.00 → Secondary support (trend structure intact above this zone)

Key Resistance Levels
• 159.20 → First resistance; break here reopens upside

• 161.00 – 161.20 → High probability target on bullish continuation
• 165.00+ (Bullish Macro Case) → Possible if U.S. yields rise further


3. Trading Scenarios
Bullish Scenario (Primary Expectation)
Trigger: Bounce from 156.05 or break above 159.20
• Targets:
o 159.20
o 161.00
o 161.20
• Stop: Below 155.50 (below corrective zone)
Rationale:
Yield differential remains highly USD favorable; BoJ is not expected to tighten quickly.


Bearish Scenario (Lower Probability)
Trigger: Sustained move below 156.00
• Targets:
o 155.00
o 153.50 (extended corrective zone)
• Stop: Above 158.80
Rationale:
Only likely if BoJ escalates verbal intervention into actual FX intervention or signals stronger than expected tightening.


4. Market Sentiment
• USD sentiment: Strong — driven by higher yields and delayed Fed easing
• JPY sentiment: Weak — BoJ slow normalization + political uncertainty
• Risk factors: Verbal intervention–driven intraday volatility
• Overall: Market favors buying dips in USDJPY while respecting intervention risk