The USD/JPY pair is currently positioned around 156.30, continuing its upward trajectory for the week following a recovery from an intraday low of 155.65. Japan’s yen remains under pressure, finding it difficult to maintain any recovery as traders assess the government’s new ¥21.3 trillion fiscal stimulus, marking the largest effort since the pandemic. Prime Minister Sanae Takaichi’s spending plan has raised concerns regarding debt sustainability, leading to a steepening of Japan’s yield curve and diminishing the yen’s status as a safe haven. Finance Minister Satsuki Katayama delivered a firm warning regarding intervention, emphasizing that Tokyo “will act decisively against excessive volatility.” Market sentiment is cautious yet not fully persuaded, given that historical intervention threats tend to lack lasting impact when yield differentials are substantial. The Bank of Japan persists in conveying inconsistent messages. Board member Asahi Noguchi reiterated that the approach to policy normalization will be gradual. However, ongoing inflationary pressures, as evidenced by a 2.7% year-over-year increase in Japan’s October Services Producer Price Index, indicate a potential shift towards tightening. Internal discussions between Governor Kazuo Ueda and PM Takaichi have reportedly alleviated political resistance to rate hikes, instilling confidence in the markets that a December increase in short-term rates is still a possibility. The Bank of Japan’s communication has notably changed, focusing on the inflationary effects of a depreciating yen. However, there remains skepticism among investors regarding the bank’s commitment to a decisive exit from its ultra-loose monetary policy. The upcoming Tokyo CPI reading on Friday may set the stage for future decisions: a core inflation figure exceeding 2.5% would probably validate a move in December, whereas a lower result could delay any action until Q1 2026.
Across the Pacific, the Federal Reserve’s shift towards rate cuts is amplifying the downward pressure on the dollar’s yield advantage. Source indicates an 85% likelihood of a 25 basis points reduction at the December 9–10 meeting, bolstered by declining retail sales and deteriorating jobless trends. Currently, the U.S. 10-year Treasury yield is positioned around 4.28%, maintaining a yield spread over Japan’s 10-year JGB of nearly 420 basis points, a level that has historically correlated with yen depreciation. The dovish stance of the Fed indicates a cap on the upward momentum for USD/JPY; however, in the absence of assertive measures from the BoJ, the pair is still inclined towards additional appreciation. From a technical perspective, USD/JPY is currently situated within an ascending channel, exhibiting a pattern of higher highs and higher lows that has been established since early October. Immediate support is positioned around 155.00, which aligns with the 21-day SMA and the lower channel boundary. A decisive break below 155 could trigger a retracement toward the 50-day SMA at 152.38, but momentum remains tilted upward. The MACD histogram has shifted to a slightly negative position, indicating a decrease in momentum, while the RSI has declined to 62 after briefly reaching overbought levels at 72, implying a sense of mild exhaustion. The upcoming resistance area is positioned between 157.00 and 157.50. A breakout above 157.19 could lead to a retest of 158.88, which represents the yearly high. A consolidation between 155.80 and 157.20 appears to be the most likely short-term pattern as we approach December’s policy meetings.
As the U.S. markets observe the Thanksgiving holiday, we are witnessing a notable decrease in volatility, aligning with seasonal trends. Since 1992, historical data indicates that the average movement in USD/JPY on Thanksgiving Day is merely 0.55%. In contrast, Friday sessions yield a median gain of 0.18%, accompanied by a win rate of 66.7% for dollar bulls. This indicates an increased likelihood of upward momentum when U.S. traders come back, particularly if Treasury yields hold steady. Thin liquidity can amplify intraday fluctuations; thus, it is advisable to keep risk parameters tight within the 155.65–157.20 range. The Nikkei 225 maintains its upward momentum, approaching the significant 50,000-point threshold, while closely following the trends in yen depreciation. The 20-day correlation between the Nikkei and USD/JPY stands robust at 0.81, indicating that weaker yen dynamics directly enhance Japanese equities via improved export competitiveness. Investors shifting towards Japanese stocks are intensifying currency pressures, as foreign inflows into equity ETFs surpassed ¥380 billion in November alone. Despite the 10-day correlation between the yen and the Nikkei declining to 0.08, the medium-term relationship still exhibits a synchronized strength — a strengthening dollar-yen pair continues to support Japan’s stock-market momentum. Japan’s concurrent fiscal expansion alongside cautious monetary tightening presents a distinctive policy divergence. The ¥21.3 trillion stimulus aims to bolster households and small businesses; however, it poses a risk of pushing inflation beyond the BoJ’s 2% target, potentially necessitating an earlier-than-anticipated acceleration of normalization by the central bank. Experts caution that the forthcoming debt issuance may elevate Japan’s debt-to-GDP ratio beyond 265% by 2026, potentially eroding long-term investor confidence. The yield curve steepening—with the 10-year JGB yield at 1.09%—indicates increasing market skepticism regarding fiscal sustainability, which further limits the yen’s recovery potential.
The ongoing enhancement of global risk sentiment is increasingly undermining the yen’s position as a safe-haven currency. Positive sentiment regarding a possible ceasefire between Russia and Ukraine, along with improved equity performance in the U.S. and Asia, has prompted a shift in capital away from defensive assets. The yen’s relationship with risk-off positioning has significantly weakened since 2023; currently, it is more responsive to yield spreads than to geopolitical risk. Nonetheless, any escalation in regional tensions or a U.S. data shock could swiftly rekindle safe-haven demand, potentially pushing USD/JPY back below 155 in the short term. If USD/JPY maintains its momentum above 156.80, buyers may aim for 157.50, subsequently looking towards 158.88. Nonetheless, a decline beneath 155.50 would reveal 155.00 and possibly 152.40, where purchasing interest is expected to resurface. The overall framework continues to indicate a positive outlook as the pair remains above 153.00. Any confirmed BoJ rate hike in December would likely limit upside near 159, but without decisive tightening, the pair could still progress toward 160.00 in Q1 2026. The USD/JPY continues to exhibit a fundamentally and technically bullish outlook. The pair’s strength above 156 indicates persistent yield differentials, Japan’s fiscal expansion, and a lack of clarity from the BoJ. Momentum fatigue indicates a potential for near-term consolidation; however, the underlying conditions still support the strength of the dollar. The outlook continues to be positive, aiming for a range of 157.50–158.80 in the upcoming weeks, while downside risk is limited above 155.00.