USD/JPY weakness reflects BoJ policy stance rather than rate differentials

USD/JPY has declined to 156.50, down 0.6% as market analysis reveals the Yen's recent movements are driven more by Bank of Japan policy signaling than interest rate spreads. Despite the wide rate differential between the Fed and BoJ remaining near 5%, the Yen has shown resilience as traders interpret subtle shifts in BoJ communication. The central bank's gradual move away from ultra-loose policy, combined with speculation about potential policy normalization in 2025, is supporting the currency. Technical analysis shows USD/JPY breaking below the 157.00 psychological level, with next support at 156.00. The Dollar Index (DXY) has weakened to 107.80, adding pressure on USD/JPY. Market positioning data indicates growing short positions in USD/JPY, suggesting traders expect further Yen appreciation. The pair's movements highlight how policy expectations can override traditional carry trade dynamics, particularly as global economic uncertainty increases demand for safe-haven assets.