USD/JPY falls as yen gains on BoJ credibility, not carry trade dynamics

USD/JPY declined 0.6% to 152.80 as the yen strengthened on improving Bank of Japan policy credibility rather than traditional carry trade unwinding. The BoJ's commitment to gradual policy normalization has restored confidence in the currency, despite the wide interest rate differential with the US remaining at 4.5%. Nikkei 225 futures fell 1.2%, reflecting concerns about yen strength impacting export competitiveness. Market participants are reassessing the BoJ's determination to exit ultra-loose policy, with Governor Ueda's recent hawkish comments suggesting potential rate hikes ahead. Technical analysis shows USD/JPY breaking below the key 153.00 support level, with next target at 152.00. The shift in yen dynamics from carry trade flows to central bank credibility marks a fundamental change in the pair's drivers. Traders should monitor upcoming BoJ communications closely, as further hawkish signals could accelerate yen appreciation regardless of yield differentials.