31 July 2025,06:36
Daily Market Analysis
31 July 2025, 06:36
Key Takeaways:
*BoJ expected to hold, but rate hike risks linger as inflation stays sticky.
*Trade deals with the U.S. eases external pressures, giving BoJ policy space.
*Cautious tone likely from BoJ, but upward inflation forecast may stir hike expectations.
Market Summary:
The Japanese Yen held steady near recent lows, with USD/JPY hovering just below the psychologically significant 150 level as markets await Thursday’s Bank of Japan (BoJ) policy decision. While most analysts expect the BoJ to maintain its policy rate at 0.5%, speculation around a potential rate hike later this year is quietly gaining traction. Japan’s newly signed trade agreement with the U.S. which slashes auto tariffs to 12.5% and removes a layer of trade uncertainty has given policymakers more room to maneuver, reducing one of the key downside risks cited in earlier policy meetings.
Inflation remains a pressing concern. Core CPI has remained consistently above the BoJ’s 2% target for over a year, driven by elevated food and utility costs. However, the central bank has refrained from tightening aggressively due to subdued wage growth and lingering political instability, with Prime Minister Ishiba now facing internal pressure that could further complicate policymaking. Against this backdrop, BoJ Governor Kazuo Ueda is expected to strike a careful tone which acknowledges progress on inflation and trade, but stops short of committing to imminent action. Markets will scrutinize the BoJ’s updated inflation forecasts for clues, as an upward revision could strengthen the case for a hike by December.
Still, any hawkish shift may be tempered by global risk sentiment and the fragile domestic political backdrop. Without a clear signal, USD/JPY could breach 150, inviting potential verbal or direct intervention. A neutral-to-hawkish outcome could cap gains near 149, while a dovish or ambiguous stance risks fueling further yen weakness.
Technical Analysis
USDJPY, H4:
USD/JPY is holding above the 148.90 support level after a recent pullback from the 149.80 resistance zone. The pair had been on a strong bullish run leading into this resistance, but price action now suggests some profit-taking as sellers step in near the upper boundary. Despite the pullback, the overall structure remains constructive, with the 148.90 level, which aligns closely with the 20-period SMA, now serving as a key support zone to watch. A sustained hold above this level could provide the foundation for another attempt at retesting 149.80 resistance area.
Momentum indicators are currently mixed but leaning moderately bullish. The Relative Strength Index (RSI) is at 58, holding comfortably above the midline, reflecting that buyers still retain some control. Meanwhile, the MACD remains in positive territory, with the histogram printing above the zero line, though the signal lines are narrowing, hinting at waning momentum.
Overall, USD/JPY maintains a bullish bias as long as it stays above 148.90. However, traders should monitor for a potential deeper pullback toward 148.20 if selling pressure accelerates. A decisive break back above 149.80 would confirm the continuation of the uptrend.
Resistance Levels: 149.80, 151.15
Support Levels: 148.90, 148.20
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