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In Xenoblade Chronicles, sometimes when a character hits it displays two grey shield icons next to the damage dealt. I get that it's a reduced damage notification, but why am I seeing it, and what can I do to not get these sort of hits to occur?

I read up online and seemed to come across a "Block Rating" mechanic in the game that enemies and player characters have, but I couldn't find any information on how to improve or bypass that value in combat. Any ideas?

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I believe blocking is mostly a function of the level difference between you and the enemy. I'm not aware of any way to overcome it.

However, I don't think ether attacks can be blocked period (I'm pretty sure I've never seen it happen, and a little googling backs me up). So while you're out of luck for auto-attacks and any physical arts, you could stack Ether Up gems onto Melia and Riki* and try and compensate for lost damage that way.

Another idea, you could try and boost your critical rate and damage. A 25% crit rate is possible just through gems, equipment and skills can push it higher. It's only a 25% damage boost per crit, so you'll need to be crit-ing about twice as often as you're blocked to fully compensate.

*being sure to set all his ether arts

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Level difference did seem to be the issue, but I wasn't aware of Ether being able to ignore blocks. Both of these helped quite a bit, even though I rarely, if ever, use Melia or Riki. –  Shiester Sep 12 '13 at 18:24
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This just happens when the opponent blocks an attack. There is nothing to really bypass it. Like you said it rates the opponents block of the attack and the amount of damage it has reduced

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Darn, that sucks. I just hate that I can normally hit stupidly high amounts on a lot of things, but then trying to advance further into the storyline a boss enemy can block and effectively cut all that damage down to near nothing. –  Shiester Sep 11 '13 at 19:05
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@Shiester The game works on a level curve; even enemies that are only 4 or 5 levels above you can be incredibly hard, as they get bonuses to more or less everything. That may explain the common problem of them blocking your swings. Of course, the same applies to you, too. –  Frank Sep 11 '13 at 20:11
    
Yeah, was able to verify this: going at a 76 at level 72 isn't a great idea. The trash around the boss is in the 73-74 range, and as a result wasn't as difficult. –  Shiester Sep 12 '13 at 18:23
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