By: Razan Hilal, Market Analyst
The Bank of Japan's gradual tightening is keeping the Japanese yen relatively weak against the U.S. dollar, leaving USD/JPY inside an uptrend channel it has respected since 2023. That resilience stands out because the U.S. dollar index is flashing reversal risk from overbought levels last seen in 2023. At the same time, French political and debt uncertainty has pushed the euro to its most oversold daily readings since 2015. The closer USD/JPY moves toward its multi-decade highs, the more pressure builds on the Bank of Japan to intervene once again.
Razan Hilal, StoneX Media Market Analyst and a Chartered Market Technician, has spent seven years analyzing forex, stocks, commodities and equity indices from Dubai. Her work centers on technical and intermarket analysis, tracking how central bank policy, currency crosses and the U.S. dollar index interact on the charts.
The Bank of Japan's preference for gradual tightening, as it seeks to sustainably anchor inflation near its 2% target, is keeping the Japanese yen relatively weak and USD/JPY inside an uptrend channel respected since 2023. Hilal ties that policy stance directly to the chart, describing it as "allowing the dollar yen chart to maintain a neutral to bullish structure". Notably, that structure holds despite reversal risk on the U.S. dollar index, which is pulling back from overbought and diverging conditions at levels last seen in 2023. In other words, yen-specific policy rather than broad dollar strength is doing the heavy lifting for USD/JPY. A sustained return toward multi-decade highs would, in turn, put renewed pressure on the Bank of Japan to intervene.
"We can also see potential bullish reversal risks, noting the steep daily oversold condition seen on the Eurodollar chart, last seen in 2015 as a result of French political and debt uncertainty," Hilal says of the euro's slide against the U.S. dollar. EUR/JPY carries the same strain, with its weekly RSI at oversold levels last seen in 2024 and its daily RSI rebounding alongside bullish divergence on the price chart. Specifically, EUR/JPY is approaching a zone that served as both support and resistance between 2024 and 2025, which also aligns with the 38.2% Fibonacci retracement of its 2025 to 2026 advance. A sustained break below that zone would point to renewed strength in the Japanese yen, whereas a recovery would extend the yen weakness that Bank of Japan gradualism has fostered.
--- Written by Frédéric Guétin, StoneX Media Producer
--- Expert: Razan Hilal, StoneX Media Market Analyst
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