Bank of Japan Gradualism Keeps Yen Weak Against Dollar

The Bank of Japan's deliberate approach to tightening monetary policy is maintaining a weaker Japanese yen against the U.S. dollar, keeping the USD/JPY exchange rate within an uptrend channel that has held since 2023. Despite signs of reversal risk in the U.S. dollar index, which reached overbought levels not seen since 2023, the yen's relative weakness persists due to the Bank of Japan's cautious stance. This policy is allowing the dollar-yen chart to maintain a neutral to bullish structure, with further gains potentially pressuring the Bank of Japan to intervene again.

Meanwhile, political and debt uncertainty in France has driven the euro to its most oversold daily levels since 2015, affecting the EUR/JPY pair as well. EUR/JPY is approaching a key support and resistance zone last seen between 2024 and 2025, aligning with the 38.2% Fibonacci retracement of its 2025 to 2026 advance. A sustained break below this zone could signal renewed yen strength, while a recovery would extend the yen's current weakness.