Core Viewpoint - The USD/JPY exchange rate remains near a ten-month high, driven by policy divergence and economic fundamentals, with the US maintaining high interest rates while Japan continues its ultra-loose monetary policy [1][2] Group 1: Policy Divergence - The Federal Reserve is keeping interest rates between 5.25% and 5.5%, with a 32.8% probability of a rate cut in December due to persistent inflation concerns [1] - The Bank of Japan maintains a near-zero interest rate of 0.5%, despite core CPI falling to 1.8%, indicating a commitment to continued monetary easing to support economic recovery [1] - The interest rate differential between US and Japanese 10-year government bonds is 3.2 percentage points, attracting significant arbitrage funds into USD assets [1] Group 2: Economic Fundamentals - The US economy shows resilience with an unemployment rate stable at 3.6%, supporting the USD index above 100 [1] - Japan's GDP contracted by 0.3% in Q3, marking two consecutive quarters of negative growth, contributing to a technical recession [1] - Japan's exports fell by 2.1% year-on-year in October, with weak performance in automotive and electronic components, putting further pressure on the JPY [1] - Global risk aversion has decreased, weakening the traditional safe-haven appeal of the JPY, as indicated by the VIX index dropping to a yearly low [1] Group 3: Technical Analysis - The USD/JPY has been in an upward channel since April, with a recent peak of 157.42, currently fluctuating between 156 and 158 [2] - Technical indicators show a bullish pattern, with moving averages aligned positively and MACD indicators expanding, although RSI is nearing overbought territory [2] - Key resistance is at the 2025 high of 158.87, while short-term support is between 155.00 and 156.80, with market attention on potential intervention by the Bank of Japan near 158.50 [2] Group 4: Trade Impact - The depreciation of the JPY increases procurement costs for Chinese exporters to Japan, leading to a 5.1% year-on-year decline in exports from January to October 2025 [2] - Labor-intensive sectors like textiles and home appliances are particularly affected, with significant revenue losses when converting JPY-denominated export income [2] - Conversely, the lower JPY benefits Chinese importers, with a 6.8% year-on-year increase in imports from Japan in October 2025, aiding in technology upgrades and cost control [2]