The market has clearly expressed its discomfort with rising interest rates in Japan, as traders continue to apply pressure on bond markets in Tokyo. The USD/JPY pair fluctuated throughout Wednesday’s session, reflecting persistent volatility near the 158.00 level. The upcoming Bank of Japan interest rate decision on Friday remains a key event that is likely to shape the next directional move.
While no immediate rate cut or hike is expected, market attention will be firmly focused on the policy statement and the subsequent press conference. Japan’s position is becoming increasingly fragile as it maintains interest rates at around 75 basis points while its bond market shows growing signs of strain due to elevated debt levels. The ongoing stress in Japanese government bonds highlights market resistance to higher rates. Should the Bank of Japan reopen discussions around quantitative easing, it would likely support bonds but exert downward pressure on the yen, reinforcing upside risks for USD/JPY.
The interest rate differential between the United States and Japan remains wide, even if the Federal Reserve delivers a cumulative 50 basis points of rate cuts this year as expected. This spread continues to support carry trade flows, allowing traders to earn positive returns for holding long USD/JPY positions. This remains a central driver of price action in the pair. Technically, the 50-day EMA near 156.11 continues to act as dynamic support, reinforcing a buy-on-dips strategy.
From a positioning standpoint, buying USD/JPY on pullbacks remains favored, particularly while price holds above the 50-day EMA. Maintaining and gradually adding to long positions has proven effective, generating consistent daily carry returns. As long as the broader macro backdrop remains unchanged, this trend is likely to persist. The next upside target for USD/JPY remains firmly set near the 160.00 level.