BoJ Dovishness and Carry Trades Keep Yen Weak

Key Takeaways:

*USD/JPY is testing ¥155, driven by dovish BoJ signals, carry-trade flows, and Prime Minister Takaichi’s comments urging slow rate hikes.

*Manufacturing sentiment surged to +17, boosted by a weaker yen, but the benefit is outweighed by broader yen-depreciation forces.

*Improving risk-on appetite reduces yen’s safe-haven appeal; abrupt reversals could occur if safe-haven flows spike or BoJ policy surprises.

Market Summary:

The Japanese Yen remains under significant pressure as USD/JPY pushes toward the ¥155 region, marking its weakest level since February. The currency’s decline is driven by a resurgence in carry-trade demand, as investors borrow low-yielding yen to invest in higher-yielding assets, a dynamic reinforced by dovish signals from the Bank of Japan (BoJ). New Prime Minister Sanae Takaichi’s comments urging the BoJ to “go slow on rate hikes” have further cemented the yen’s weakness, signaling that policymakers are unlikely to tighten aggressively in the near term.

Domestic fundamentals offer some nuance. The latest Reuters Tankan survey showed Japanese manufacturing sentiment surged to +17 in November from +8 in October, the highest in nearly four years, aided by a weaker yen boosting export competitiveness. Despite this positive tailwind for exports, the overall market tone remains tilted toward yen depreciation, as the carry-trade advantage and policy divergence with other major central banks continue to dominate investor behavior.

Intervention risks are increasingly prominent. Tokyo has issued repeated warnings about “one-sided and rapid movements” in the FX market and is monitoring conditions with high urgency. While USD/JPY approaching ¥155 has historically triggered Ministry of Finance action, some commentators suggest the pair could test ¥158 before a meaningful policy response occurs. Traders are therefore balancing the near-term downside bias with the possibility of abrupt reversals if authorities step in, creating an uneasy equilibrium.

Looking ahead, the yen’s path will hinge on three main factors: any unexpected hawkish turn from the BoJ, sudden shifts in global risk appetite—which currently favor risk-on and weigh on safe-haven demand for the yen and whether export strength translates into broader economic uplift that could alter policy assumptions. Absent these developments, the path of least resistance remains downward, though volatility is likely to spike around key intervention thresholds.

Technical Analysis

USD/JPY, H4: 

USD/JPY has extended its advance, breaking decisively above the 154.20 resistance area after a period of consolidation. The breakout confirms the continuation of the broader bullish trend that has dominated in recent weeks, propelling the pair toward the 156.00 region which is a key psychological and structural resistance level that could determine the next directional move.

Momentum indicators present a cautiously optimistic outlook. The RSI hovers around the 55, suggesting moderate bullish momentum without reaching overbought territory leaving room for further upside. Meanwhile, the MACD has turned slightly positive, with the signal line and histogram showing early signs of renewed buying pressure. However, momentum remains gradual rather than aggressive, implying the potential for short-term pauses or minor pullbacks.

In summary, USD/JPY maintains a constructive bullish outlook following a successful breakout above a major resistance zone. While the short-term trend remains upward, traders should watch for potential consolidation phases before the next leg higher.

Resistance Levels: 156.00, 158.60
Support Levels: 153.15, 149.70