Nikkei 225 & USD/JPY Rise Together as BOJ Minutes & CPI Support Uptrend

USD/JPY Rebounds After Early 2025 Pullback

The USD/JPY pair has maintained a strong bullish trend since 2021, experiencing periodic pullbacks, including a notable decline in Q3 2024. However, buyers regained control in Q4, keeping the overall trend intact. At the start of 2025, the pair faced strong selling pressure, dropping over 10 cents due to a combination of factors:

• A more hawkish stance from the Bank of Japan (BOJ)

• A weaker US dollar

• Heightened trade tensions, which increased demand for the Japanese yen as a safe-haven asset

This decline pushed USD/JPY to 146.54, but the 100-week SMA (green) provided firm support. Over the past three weeks, the pair has rebounded sharply, rising more than 4 cents and regaining the 150 level. The latest BOJ meeting minutes did not indicate an imminent rate hike, reinforcing bullish sentiment for both USD/JPY and the Nikkei 225 index.

Bank of Japan January Meeting Minutes – Key Takeaways & Market Implications

Key Discussions and Outlook

• Stronger Confidence in Economic Outlook: Most members agreed that the probability of achieving the economic outlook had increased.

• Real Interest Rates Remain Negative: Some members noted that even after a rate hike, real interest rates would still be significantly negative.

• Gradual Policy Adjustments Needed: One member suggested that if underlying inflation continues to rise, the BoJ should increase policy rates gradually.

• Concerns Over Yen Depreciation & Financial Stability: A member highlighted the need to adjust monetary policy to prevent excessive yen depreciation and overheating in financial markets.

• Potential Rate Target for 2025: One member proposed that BoJ should consider setting the policy rate around 1% in the second half of fiscal 2025.

• Cautious Approach to Rate Hikes: A member warned that the BoJ should be extremely cautious when communicating the pace and terminal level of rate hikes.

Nikkei 225 Recovers After Q1 Decline

Japan’s Nikkei 225 has also been in a long-term uptrend, consistently supported by key moving averages. The 50-week SMA (yellow) has historically acted as a strong support level, helping the index maintain its bullish momentum. However, the combination of BOJ’s tightening policies and declining risk sentiment in early 2025 led to a break below this support, triggering further losses.

The decline found strong support at the 100-week SMA (green) around 36,000 points, where buyers stepped in once again. Over the last three weeks, the Nikkei has staged a strong recovery, surpassing 38,000 points and gaining more than 5%.

Conclusion: Outlook Remains Bullish for USD/JPY and Nikkei

With the BOJ maintaining a cautious stance on rate hikes, the USD/JPY pair remains in a bullish trend, supported by improving risk sentiment. Similarly, the Nikkei 225 has resumed its uptrend, benefiting from a strong rebound in Japanese equities. As long as global market conditions remain stable and BOJ policies stay accommodative, both USD/JPY and the Nikkei index are likely to see further gains in the coming weeks.