The BoJ Is Shifting – But Is the Yen Ready to Follow?

ACY

Forex

Political

Economic

Summary:

The BoJ held rates steady at 0.50% that’s no surprise. But what did raise eyebrows was the fact they bumped up their inflation forecast for 2025 to 2.7%, up from 2.2%. That’s not a small revision.

Over the past few weeks, I’ve been closely following the developments from the Bank of Japan, and to be honest, this is the most interesting the BoJ has been in a long time.We’re watching a central bank slowly (and I mean very slowly) turn the wheel after decades of ultra-loose monetary policy. And if you’re trading the Japanese yen or have exposure to Asia, what’s happening now could quietly reshape how capital flows into the region, and what USD/JPY might look like in the months ahead.

The BoJ Is Shifting – But Is the Yen Ready to Follow?_1

Source: TradingView

The July BoJ Decision: What Actually Happened

The BoJ Is Shifting – But Is the Yen Ready to Follow?_2

Source: BoJ

At first glance, this looked hawkish. Markets even responded with a quick push higher in the yen. For a moment, it seemed like Japan might be finally warming up to more aggressive tightening. But then came the press conference and Governor Ueda had other ideas.

Governor Ueda's Messaging: The Fog Hasn't Cleared

During the press conference, Ueda poured a big glass of cold water over those hawkish expectations. He was clear: the BoJ isn’t hiking just because inflation is up. What they want to see is sustainable, wage-driven inflation not just price pressures from food or supply-side distortions.And when it comes to the new U.S.-Japan trade deal? Ueda was cautious there too. He called the current situation “foggy” and advised against assuming that the tariff impact would be immediately clear. That kind of language doesn’t usually come from a central bank ready to hike aggressively.

What This Means for the Yen Right Now

So where does that leave the yen? Well, USD/JPY is hovering just under 150 and to me, it feels like we’re at an inflection point. The short squeeze we saw last week was real. A lot of the long yen positions entered between 158 and 150 are now being reevaluated. There's nearly $10 billion in futures positioning in that range, that kind of clustering can act like a gravity well either pulling us back to 152 or snapping lower toward 147.But here’s the kicker: even with BoJ sounding slightly more upbeat about growth and inflation, Japan is still sitting on negative real yields. In a low-volatility FX environment, that just doesn’t attract foreign capital the way the U.S. or even Europe does right now.

Trading Takeaways: How I’m Thinking About USD/JPY

From a positioning point of view, I’m cautious on shorting USD/JPY too aggressively here. We need to respect the technical levels 147 is a key support, while 151/152 remains heavy resistance.

The BoJ Is Shifting – But Is the Yen Ready to Follow?_3

Source: TradingView

But fundamentally, the story is changing. Slowly, yes, but it's changing.If BoJ does hike this year and inflation proves sticky, the yen could see a stronger bid, especially as global equity volatility picks up. Until then, the dollar is still king but it’s no longer unchallenged.

1. What did the Bank of Japan decide in its July 2025 meeting?The BoJ kept its short-term interest rate unchanged at 0.50% for the fourth consecutive meeting. While they revised their inflation forecast for 2025 upward to 2.7%, Governor Ueda emphasized that further rate hikes would only happen if inflation proves sustainable, not just reactive.

2. Why is the Japanese yen (JPY) still weak despite rising inflation?Because the BoJ is still cautious. Inflation in Japan is largely supply-driven (think food and energy), not demand-led. Until wage growth and domestic consumption strengthen, the BoJ won’t rush into hiking rates keeping real yields low and the yen less attractive globally.

3. How does the U.S.xJapan trade deal affect BoJ policy?The recent trade deal adds layers of uncertainty. Governor Ueda pointed out that the “fog” around tariffs hasn’t cleared, meaning the BoJ is hesitant to overreact without solid data on how the agreement affects real economic activity.

4. Is USD/JPY likely to break below 147 or push above 152?Right now, USD/JPY is trading in a tight range. There's heavy positioning in the 150/152 zone, and unless we see a strong surprise from either the BoJ or the Fed, it’s likely to remain range-bound. That said, any BoJ rate hike or dovish Fed move could spark a break below 147.

5. What’s the best way to trade JPY in this environment?I’m keeping a tactical approach respecting technicals while watching global rate differentials. Until the BoJ commits to a clear tightening path, I see better opportunities in short-term USD/JPY pullbacks and yen crosses where risk sentiment plays a bigger role.

Source:ACY

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Winkelmann

Economic

Forex

The Bottom Line:

The Canadian economy contracted for a second consecutive month in May, with GDP declining by 0.1%. That was in line with Statistics Canada’s preliminary estimate from a month ago and follows a similar decline in April. The economy continued to grapple with external headwinds, however most of the May GDP decline was explained by temporary disruptions to oil extraction due to wildfires with the manufacturing sector partially retracing a large April decline. Statistics Canada’s early estimate for June GDP points to a likely 0.1% rebound. This estimate aligns with other preliminary economic data released for June, including a notable jump in retail sales, positive recoveries in wholesale sales, and an increase in hours worked.

GDP growth for Q2 as a whole is tracking an approximately 0.1% annualized increase, a notable slowdown from the 2.2% expansion seen in Q1. But that is still higher than the 1.5% contraction assumed in Q2 in all of the Bank of Canada’s scenarios outlined in the April Monetary Policy Report. The Canadian economic outlook remains highly contingent on the evolution of U.S. trade policy. However, to-date, Canadian goods exports to the U.S. continue to benefit from CUSMA provisions that exempt most goods from tariffs. Our own base-case outlook continues to expects that, with domestic demand holding steady, the economy will avoid a recession and instead achieve modest, gradual growth through year-end.

The Details:

● Canadian GDP fell by 0.1% in May, in line with Statistics Canada’s advance estimate and slightly above our own expectation. The decline was primarily driven by the goods sector, while output from services sectors remained flat.

● In the goods producing industries, non-conventional oil extraction experiencing another 3% drop in May. While rig counts dipped further in June, oil production likely rebounded as facilities resumed operations after disrupted by wildfires.

● Trade-exposed sectors, such as manufacturing, transportation and warehousing industries, rebounded by 0.7% and 0.6% respectively in May, following declines in April.

● Meanwhile, service-producing industries were little changed overall. Wholesale activity stabilized after two consecutive months of contraction, and the real estate sector posted gains in line with stronger home resale activity.

● The retail sector was a notable weak spot in May, declining by 1.2% and almost erasing the gains from the prior two months. However, preliminary estimates for June point to a 1.6% rebound in retail sales, suggesting the weakness observed in May was not sustained.

● Statistics Canada’s early estimate for June indicates GDP growth of 0.1%, driven increases in retail and wholesale trade that offset pullbacks from manufacturing. But these early estimates are usually highly revision prone.

● On a quarterly basis, including June’s advance estimate, Q2 GDP is tracking a 0.1% annualized increase, which is slightly higher than our current projection of flat growth for Q2.

Source:RBC

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MarketPulse by OANDA Group

Economic

Forex

Market saw another leg higher in the US Dollar after the Core PCE came above expectations (0.3% vs 0.2% exp m/m).

Despite pushing back some tariff deadlines with Mexico notably, Equities still finish the session in the red – This comes amid some technical resistances (high of channel for the Nasdaq) that coincides with some profit-taking right before tomorrow's Non-Farm Payrolls.

Core PCE Beats and Equities Drop – Market Wrap for the North American Session_1

Nasdaq 8H Chart, spot the reactions at the high of the Channel, July 31, 2025

Donald Trump also sent letters to healthcare CEOs menacing them to strongly cut prices on drugs, this may have an effect on expected EPS for Healthcare and Biotech companies.It seems that the combination of technicals right before the Non-Farm Payrolls release dominated the price action today, and this comes despite very solid earnings from Amazon. The market still awaits the Apple earnings.

Cross-Asset Daily Performance, July 31, 2025 – Source: TradingView

There hasn't been many records beaten today, as expected in a pre-NFP session and particularly as US PCE inflation comes in strong again.Watch how risk assets progressively gave up their progress throughout the session (ETH and Nasdaq particularly).Gold however enjoyed the session, rallying back a bit but still trading just below the $3,300 key mark – Other commodities keep rejecting their highs, even the strong performing Oil.

Core PCE Beats and Equities Drop – Market Wrap for the North American Session_3

Currency Performance, July 31 – Source: OANDA Labs

The USD had another strong day but two things changed compared to yesterday's picture: The CHF fought well and is finishing on top of majors and this comes at the cost of the JPY, weakest of majors.There is some more rebalamncing between the two safe-haven currencies after the Bank of Japan disappointed Yen bulls yet again.

It will be interesting to see what Regeneron (Healthcare company) announces in terms of their earnings previsions after Trump's announcement.Don't forget to check out the Berkshire-Hathaway earnings (Warren Buffet recently retired for those who didn't know) and Exxon's earnings.

Source:OANDA

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Edward Lawson

Canada's Gross Domestic Product shrank 0.1% in May on a monthly basis as expected but is likely to regain the lost ground in June as some sectors rebound, data showed on Thursday.

An advanced estimate showed GDP is likely to have expanded by 0.1% in June, and on an annualized basis it could also post growth of 0.1% for the second quarter, Statistics Canada said.

That is in contrast to the more widely held expectation for a second-quarter contraction, and could change when the final June numbers are released next month.

In May, the biggest hit to growth came from the retail trade sector which contracted 1.2%, StatsCan said, adding that activity across seven subsectors out of 12 shrank.

Retail trade is part of the larger services-producing industries that contribute up to 75% of total GDP. Overall, output from the services-producing group was flat in May as the drop in retail trade was offset by real estate and transportation.

Amongst goods-producing industries, which account for 25% of GDP, the mining, quarrying, and oil and gas extraction sector was the main laggard with activity shrinking 1% in the month.

Manufacturing expanded 0.7% on a monthly basis, after a 1.8% decline in April, largely as a result of higher inventory accumulation, the statistics agency said.

Canada's economy contracts by 0.1% on a monthly basis in May

Canada's first quarter GDP expanded 2.2% on an annualized basis as exporters advanced their sales to the United States to beat a barrage of incoming tariffs. But as tariffs took effect from March, exports and industrial output took a hit.

The Bank of Canada, after announcing that it would keep rates on hold at 2.75% on Wednesday, said that it expected the economy to contract by 1.5% in the second quarter due to a 25% drop in exports.

StatsCan's forecast of even slim Q2 growth could take away the incentive for a rate cut in September, though data on inflation and job growth before the BoC's next meeting will be crucial.

Economists expressed doubt on a prospective growth in the second quarter as the data is calculated based on expenditure and income of people, unlike monthly GDP which is based on industry output.

"We will need to wait and see next month's quarterly GDP release to know whether the economy is really outperforming the Bank's expectations," Andrew Grantham, senior economist at CIBC Capital Markets wrote in a note.

Royce Mendes, head of macro strategy for Desjardins Group noted that there was lingering uncertainty about trade policy and domestic headwinds, which will continue to weigh on activity, forcing the central bank to restart cutting rates by September.

Money markets are betting around an 89% chance of the BoC holding rates on September 17, up three percentage points from before the GDP data was released .

The Canadian dollar dropped 0.11% to 1.3842 to the U.S. dollar, or 72.24 U.S. cents.

The U.S. and Canada are currently locked in negotiations to hash out a trade deal by Friday in a bid to reduce tariffs, but negotiators have admitted that it may not happen by the deadline.

Source: Reuters

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Samantha Luan

Economic

Forex

The GBP/USD currency pair continues to move within the framework of a downward trend and the beginning of a head and shoulders reversal pattern. At the time of publication, the pound-dollar exchange rate on Forex is 1.3206. Moving averages indicate a short-term bearish trend. Prices have broken through the area between the signal lines downwards, indicating pressure from sellers of the currency pair and a potential continuation of the instrument’s decline. At the moment, we can expect an attempt at a bullish correction of the British pound against the US dollar and a test of the resistance area near the 1.3275 level. From there, we can again expect the pair to rebound downward and continue to fall against the US dollar. The target for the pair’s decline, according to the Forex forecast, is the area at 1.3005.

GBP/USD Forecast and Analysis for August 1, 2025

An additional signal in favor of a decline in the currency pair will be a test of the trend line on the relative strength index (RSI). The second signal in favor of a decline will be a rebound from the upper border of the bearish channel. A strong rise and a breakout of the resistance area with the price consolidating above 1.3405 will cancel the scenario of a decline in the GBP/USD currency pair. This will indicate a breakout of the resistance level and a continuation of the GBP/USD pair’s growth to the area at 1.3665. Confirmation of the pair’s decline should be expected with a breakout of the support area and the price closing below the level of 1.3265.

GBP/USD Forecast and Analysis for August 1, 2025 suggests an attempt to develop growth and test the resistance area near the 1.3275 level. Then, the quotes will continue to fall with a target near the 1.3005 level. An additional signal in favor of a decline in the British pound will be a test of the resistance line on the relative strength index (RSI). A strong rise in the British pound against the US dollar and a breakout of the 1.3405 area will cancel the decline scenario. This will indicate a continuation of the rise in the Forex pair with a potential target above the 1.3665 level.

Source: forex24.pro

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Alice Winters

Key Points:

● Germany's inflation rate dropped to 1.8% in July 2025.

● Stalled economic growth highlighted in inflation data.

● Potential implications for ECB's future monetary policies.

Germany's EU-harmonised inflation decreased to 1.8% in July 2025, surpassing market expectations amidst stagnant economic growth.

The lower-than-expected inflation may influence future European Central Bank policies, affecting EUR and potentially impacting major cryptocurrencies like BTC and ETH.

Germany's recent inflation data reveals a decline in the EU-harmonised rate to 1.8% for July 2025, surpassing market expectations. Meanwhile, national inflation remains stable at 2%, set against stagnant economic growth as reported by Destatis.

Destatis, the Federal Statistical Office, reported the inflation figures, serving as the central authority for macroeconomic data releases in Germany. The agency indicated the consistent national inflation at 2%, aligning with expectations.

"The inflation rate in Germany is expected to be +2.0% in July 2025. The inflation rate is measured as the change in the consumer price index compared with the corresponding month of the preceding year." Source: Destatis

The reduction in inflation highlights potential impacts on macroeconomic strategy in Europe, particularly concerning fiscal policy adjustments. There are expectations of shifts in ECB policies, though no definitive changes were announced following the data release.

Macroeconomic assets, including the EUR and European bonds, could experience volatility as markets respond to evolving inflationary trends. Despite the absence of direct impacts on cryptocurrency markets, indirect effects may influence investor sentiment toward risk assets.

Historical data suggests German inflation surprises often affect market dynamics, notably in foreign exchange movements and crypto fluctuations. Stability in EU economic indicators could encourage steady approaches by financial regulators, amidst ongoing monetary policy evaluations by the ECB.

Potential outcomes could include adjustments in ECB rate expectations to align with regional inflation data, impacting interest rates across Europe.

Source: CryptoSlate

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Samantha Luan

Stocks

Forex

Economic

Key points:

● US announces new tariff rates ahead of trade talks deadline

● Nasdaq futures slip 0.5% as Amazon tumbles after hours

● Dollar sets for 2.4% weekly gain, best in nearly 3 years

● US jobs data pivotal for Sept rate cut hopes

Asian shares fell on Friday after the U.S. slapped dozens of trading partners with steep tariffs, while investors anxiously await U.S. jobs data that could make or break the case for a Fed rate cut next month.Late on Thursday, President Donald Trump signed an executive order imposing tariffs ranging from 10% to 41% on U.S. imports from dozens of countries and foreign locations. Rates were set at 25% for India's U.S.-bound exports, 20% for Taiwan's, 19% for Thailand's and 15% for South Korea's.

He also increased duties on Canadian goods to 35% from 25% for all products not covered by the U.S.-Mexico-Canada trade agreement, but gave Mexico a 90-day reprieve from higher tariffs to negotiate a broader trade deal."At this point, the reaction in markets has been modest, and I think part of the reason for that is the recent trade deals with the EU, Japan, and South Korea have certainly helped to cushion the impact," said Tony Sycamore, analyst at IG.

"After being obviously caught on the wrong foot in April, the market now, I think, has probably taken the view that these trade tariff levels can be renegotiated, can be walked lower over the course of time."MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.4%, bringing the total loss this week to 1.5%. South Korea's KOSPItumbled 1.6% while Japan's Nikkeidropped 0.6%.EUROSTOXX 50 futuresdropped 0.5%. Nasdaq futuresfell 0.5% while S&P 500 futuresslipped 0.3% after earnings from Amazonfailed to live up to lofty expectations, sending its shares tumbling 6.6% after hours.

Apple , meanwhile, forecast revenue well above Wall Street’s estimates, following strong June-quarter results supported by customers buying iPhones early to avoid tariffs. Its shares were up 2.4% after hours.Overnight, Wall Street failed to hold onto an earlier rally. Data showed inflation picked up in June, with new tariffs pushing prices higher and stoking expectations that price pressures could intensify, while weekly initial jobless claims signalled the labour market remained on a stable footing.Fed funds futures imply just a 39% chance of a rate cut in September, compared with 65% before the Federal Reserve held rates steady on Wednesday, according to the CME's FedWatch.

Much now will depend on the U.S. jobs data due later in the day and any upside surprise could lower the chance for a cut next month. Forecasts are centred on a rise of 110,000 in July, while the jobless rate likely ticked up to 4.2% from 4.1%.The greenback has found support from fading prospects of imminent U.S. rate cuts, with the dollar index up 2.4% this week against its peersto 100, the highest level in two months. That is its biggest weekly rise since late 2022.The Canadian dollarwas little impacted by the tariff news, having already fallen about 1% this week to a 10-week low.

The yenwas the biggest loser overnight, with the dollar up 0.8% to 150.7 yen, the highest since late March. The Bank of Japan held interest rates steady on Thursday and revised up its near-term inflation expectation but Governor Kazuo Ueda sounded a little dovish.Treasuries were largely steady on Friday. Benchmark 10-year U.S. Treasury yieldsticked up 1 basis point to 4.374%, after slipping 2 bps overnight.

In commodity markets, oil prices were steady after falling 1% overnight. U.S. cruderose 0.1% to $69.36 per barrel, while Brentwas at $71.84 per barrel, up 0.2%.Spot gold priceswere steady at $3,288 an ounce.