Core Viewpoint - The Japanese yen remains volatile as of the second half of 2025, with debates ongoing about whether it will enter a long-term appreciation cycle despite a brief stabilization earlier in the year [2] Group 1: Japanese Central Bank Policy - The Bank of Japan (BOJ) has initiated a rare policy normalization step by raising short-term interest rates to a range of 0%-0.1% for the first time since 2007 and gradually reducing asset purchases related to yield curve control (YCC) [3] - Despite this rate hike, the BOJ maintains a dovish stance due to unstable economic recovery and challenges in achieving inflation targets, with core inflation falling below 2% for two consecutive months [3] - The interest rate differential between Japan and major global central banks remains significant, complicating the yen's appreciation prospects [3] Group 2: Impact of US Federal Reserve Policy - The strength of the US dollar is a critical factor affecting the yen's potential rebound, with high uncertainty surrounding the Fed's interest rate cuts due to resilient inflation and a stable labor market in the US [4] - US Treasury yields have remained elevated, with the 10-year yield fluctuating between 4.2%-4.5%, supporting a rebound in the dollar index above 97 [4] - Diverging economic data from the US, including a mild recovery in manufacturing and resilient consumer spending, contrasts with some weakening employment indicators, affecting market expectations for Fed rate cuts [4] Group 3: Global Risk and Yen's Safe-Haven Status - Traditionally viewed as a safe-haven currency, the yen has underperformed this year despite global geopolitical tensions and financial market volatility, indicating a lack of investor confidence in its safe-haven attributes [5] - Japan's structural economic weaknesses, high debt levels, and extremely accommodative monetary policy have hindered the yen's ability to benefit from global risk events [5] - The complexity of capital flows in a multipolar world has diminished the impact of single risk events on the forex market [5] Group 4: Future Outlook for the Yen - The yen faces significant challenges for sustained appreciation in the short term, contingent on the BOJ accelerating its policy normalization or the Fed implementing substantial rate cuts [6] - Key factors to monitor include the US economic slowdown, potential geopolitical escalations, and domestic economic changes in Japan that could influence the BOJ's policy direction [7][8] - Technical analysis suggests that the dollar-yen exchange rate faces significant resistance at the 160 level, with potential movements towards 163 or a drop below 155 opening up rebound opportunities for the yen [8]