FXStreet (Delhi) – Jane Foley, Research Analyst at Rabobank, suggests that concerns regarding China may limit upside potential for USD/JPY in the coming months but the USD/JPY125 level is likely to offer strong medium-term resistance. Key Quotes “For some time, Kuroda’s relatively upbeat assessment of the Japanese economy has not sat comfortably with persistent speculation in the market that the BoJ may yet be forced to ease further this cycle. Kuroda has always carefully left the door to further easing open, but the tone of his remarks in recent months has suggested that this is not an immediate threat.” “On the back of this strength in profits the September Tankan Survey reported a sharp upward revision in the rate of growth of investment. This has led to continued tightening in the labour market which in turn has been feeding upward pressure on wages.” “Traditional measures of Japanese CPI inflation remains soft but this summer the BoJ began to shift towards ‘hardcore’ measure of underlying CPI inflation which not only rose to 1.2% y/y in September but which has managed to stay positive for 24 consecutive months since October 2013.” “Kuroda’s rosy descriptions of the Japanese economy may in part be part of the BoJ’s arsenal in the fight against the deflationary mindset. Although Kuroda appears optimistic about the recovery in domestic demand, risks related to slowing growth in China still offer a sizeable threat to the outlook for Japan’s upturn. Consequently the risk of further monetary policy action from the BoJ is set to remain on the table in recent months. That said, the BoJ’s huge appetite for certain assets could mean a change in tact may be necessary.” “While the JPY would likely respond to any increase in the risk of further BoJ easing, due to its safe haven status it also remains sensitive to the general levels of risk appetite with stronger levels of risk appetite likely to chase USD/JPY higher.” For more information, read our latest forex news.