During Tuesday's Asian trading session, the Japanese Yen strengthened slightly against the US Dollar, briefly stepping away from its weakened state after a recent decline to a one-week low. Although the rebound was limited in scope, this shift reflects market caution regarding further Yen weakness at critical levels. The re-emergence of intervention expectations has entered the market's view, becoming a significant factor supporting the Yen. Japan's Finance Minister stated that necessary close communication with the United States will continue, and appropriate actions will be taken based on the previous joint statement. This statement did not directly hint at immediate intervention, but it was sufficient to psychologically constrain the market and curb expectations of a one-sided depreciation of the Yen. Simultaneously, signals of a relatively tighter policy stance from the Bank of Japan also provided support for the currency. The latest central bank meeting minutes revealed that some policy board members are becoming more attentive to the imported inflationary pressures caused by a weak Yen, indicating a shift in the internal discussion surrounding the continuation of an ultra-loose monetary policy stance. This signal has put the market on alert regarding the future path of Japan's monetary policy. However, domestic political and fiscal uncertainties have capped the Yen's rebound potential. With Japan facing a potential snap election, policy direction uncertainty has increased noticeably. The Prime Minister's proposed stimulative fiscal policies have sparked market concerns about fiscal sustainability, somewhat diminishing the Yen's appeal as a safe-haven currency. From an external environment perspective, a generally warm global risk sentiment is also unfavorable for sustained Yen strength. Positive signals from the US on trade and a slight easing of tensions in the Middle East have contributed to a recovery in market risk appetite. Against this backdrop, the relative demand for allocating funds to traditional safe-haven assets has declined, suppressing the Yen's defensive attributes. Furthermore, the US Dollar's fundamentals remain supportive. Strong US economic data, coupled with market expectations leaning towards a cautious-hawkish future Fed stance, have shown the Dollar's resilience during its pullback. This has also limited the downside potential for the USD/JPY pair. Overall, while the Yen currently enjoys multiple short-term supports, it lacks a decisive factor to drive a trend reversal. Structurally, the USD/JPY pair experienced a clear correction from its highs, forming a complete adjustment phase. Recent attempts by the exchange rate to rebound from lower levels are still part of a post-decline recovery phase, not yet breaking free from a bearish structure. During the rebound, the price has repeatedly tested key retracement zones but has consistently failed to achieve a decisive breakthrough, indicating that selling pressure above remains. The current price action is more characteristic of a rebound meeting resistance, with the overall trend still leaning cautious. Although short-term momentum indicators remain in a neutral-to-strong range, the pace of momentum expansion has slowed, reflecting a continued lack of confidence among buyers. From a structural perspective, the USD/JPY trading below key medium-term moving averages suggests the rebound is more of a technical correction than a trend reversal. If the exchange rate fails to stabilize above the key resistance zone around 156.3, there remains potential for a retest of lower support levels. In summary, the current trend presents a consolidation pattern following the decline: there is some buying interest around 154.50 below, but resistance above is clear, and a directional breakout requires new fundamental drivers. The Yen's current rebound stems more from expectations management regarding policy and intervention, rather than a substantive shift in fundamentals. The increasingly hawkish tone within the Bank of Japan does provide medium-term potential for the Yen, but political uncertainty and fiscal concerns are dampening this positive effect. Structurally, against a backdrop where global risk sentiment has not significantly weakened and the Dollar's fundamentals remain supportive, the USD/JPY pair is more likely to maintain a range-bound consolidation than experience a one-sided downward trend. In the short term, Yen bulls require clearer policy signals or risk events to establish a more sustainable rebound trend.
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