JPY Strengthens Ahead of BoJ Decision, Traders Eye Inflation Hints

Summary

• EURJPY dropped to 162.03, its lowest in five days.
  • Support: 161.00
  • Resistance: 163.50
• GBPJPY fell to 190.82, with next support at 183.00.
• USDJPY edged down to 142.07, eyes key support at 139.00.
• CHFJPY slid to 172.80, with further downside risk toward 170.00.

The yen's broad-based strength reflects cautious positioning ahead of Thursday's BoJ decision.

Fundamental Factors Driving the Yen

1. BoJ Policy Hold Expected, But Forecasts in Focus
   • BoJ is widely expected to keep rates unchanged this week.
   • However, the updated economic forecasts—especially inflation projections—will be critical for clues on future tightening.
   • Markets are seeking guidance on the timing of the next rate hike, especially with core inflation still rising in Japan.
2. Shift in Market Expectations
   • Recent U.S. tariff actions and broader trade uncertainty have pushed back expectations of a near-term BoJ hike.
   • Still, persistent domestic inflation keeps the possibility of rate hikes later in 2025 alive, limiting the JPY downside.
3. Trade Tension and Safe-Haven Flow
   • Despite mixed signals from US-China negotiations, markets are cautiously optimistic about de-escalation, which could dampen safe-haven demand.
   • However, ongoing trade volatility supports the JPY, especially against risk-sensitive currencies.
4. Upcoming Data to Watch
   • Today, eurozone economic sentiment and U.S. consumer confidence figures could introduce cross-currency volatility, particularly in EURJPY and USDJPY pairs.
   • Weak U.S. data would likely reinforce JPY strength on lower Fed rate hike bets.

Key Takeaway for Traders

• JPY has firmed as traders await the BoJ's policy decision and inflation outlook.
• Even with a policy hold, hawkish revisions or forward guidance could boost the yen further.
• Given inflation trends and geopolitical tensions, JPY may remain well-supported in the short term, especially against the euro and pound.

GBPJPY – D1 Timeframe

The daily timeframe chart of GBPJPY shows a confluence of resistance trendlines, both intersecting within the supply area of the recent bearish impulse. Notably, the supply zone falls within the key area of the Fibonacci retracement levels, further increasing the confidence in the possibility of a bearish outcome.

GBPJPY – H4 Timeframe

On the 4-hour timeframe chart of GBPJPY, we see a clear SBR pattern formed, with the higher timeframe supply forming right on the shoulder of the SBR pattern. The sensible conclusion here is bearish. However, a confirmation before entry is still required to minimize risk.

Analyst's Expectations:

Direction: Bearish

Target- 187.290

Invalidation- 196.194

CONCLUSION

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