Key Moments
- The Japanese yen emerged as the strongest major currency, pushing USD/JPY down toward 155.00.
- Stronger-than-expected Tankan data and a positive BoJ wage growth assessment reinforced expectations for a rate hike.
- Markets currently price an 83% probability of a 25 bps BoJ hike on Friday. Meanwhile, US NFP and CPI are expected to be the main macro drivers.
Fundamental Overview
US Dollar: Fed Dovish Tone Weighs on Greenback
The US dollar has weakened against major peers since last week’s FOMC decision. The Federal Reserve cut rates by 25 bps as expected. Fed Chair Jerome Powell’s remarks leaned dovish, signaling that further easing would require stronger justification.
Instead of emphasizing strict data dependence, Powell highlighted labor market softness. He downplayed inflation concerns, suggesting the Fed is willing to tolerate elevated inflation rather than allow employment conditions to deteriorate further.
Investors now focus on upcoming US Nonfarm Payrolls (NFP) and Consumer Price Index (CPI) releases. These reports will likely dominate the final meaningful trading week of the year. Currently, markets price in 57 bps of rate cuts by the end of 2026.
Stronger US labor data could trigger a hawkish repricing of the Fed path, supporting the dollar. Conversely, softer figures would likely weaken the greenback as investors anticipate additional rate cuts.
Japanese Yen: Data and BoJ Signals Bolster Tightening Expectations
On the Japanese side, the yen had not appreciated as much as some expected despite leaks and a hawkish tone from the Bank of Japan (BoJ). One reason is that markets already priced in at least two rate hikes by the end of 2026.
Today, the yen strengthened following better-than-expected Tankan survey results. In addition, fresh BoJ comments and the wage growth assessment reinforced expectations of tightening.
Markets now reflect strong conviction that the BoJ will deliver a 25 bps rate hike at this week’s meeting. However, investors do not expect the central bank to exceed current hawkish projections, which total 67 bps of tightening by the end of next year.
Given this backdrop, USD/JPY will likely respond more to incoming US data than to the BoJ announcement unless the central bank surprises relative to current expectations.
| Factor | Current Market Expectation |
|---|---|
| BoJ rate hike probability on Friday | 83% for a 25 bps increase |
| BoJ total tightening priced by end of next year | 67 bps |
| Fed easing priced by end of 2026 | 57 bps |
USD/JPY Technical Picture – Daily Chart
On the daily timeframe, USD/JPY is approaching a key support zone around 153.50. Buyers are expected to defend this area, aiming for a rebound toward 158.87. Conversely, a break below 153.50 could trigger further downside toward the major trendline.
USD/JPY Technical Picture – 4-Hour Chart
The 4-hour chart shows choppy and inconsistent price action. Currently, the pair trades near last Thursday’s low around 155.00. A sustained move below 155.00 would likely test the daily support at 153.50, which remains crucial for both buyers and sellers.
USD/JPY Technical Picture – 1-Hour Chart
On the 1-hour timeframe, short-term support and resistance levels are evident. Buyers have stepped in around 155.00, targeting a recovery to 155.50. If the price reaches 155.50, sellers may challenge the upside, seeking fresh lows.
Conversely, a move above 155.50 would likely encourage bulls to add positions, targeting 156.15. Red lines on the intraday chart indicate the average daily range for the session.
Key Upcoming Catalysts
Major events in the coming days include:
- Tomorrow: US Nonfarm Payrolls (NFP) report
- Thursday: US Consumer Price Index (CPI) data
- Friday: Bank of Japan Monetary Policy decision
These releases are expected to influence USD/JPY. US data remains the primary driver unless the BoJ deviates materially from current expectations.
TradingPedia.com is a financial media specialized in providing daily news and education covering Forex, equities and commodities. Our academies for traders cover 
