The yen came under slight pressure, while the USD/JPY pair remained range-bound at high levels.
2025-12-12 14:06:52
The USD/JPY pair maintained a modest decline during Friday's Asian trading session, fluctuating around 155.60. The yen weakened amid waning safe-haven demand, but its overall decline was limited, primarily as the market gradually accepted the possibility that the Bank of Japan might begin further policy normalization next week.
The Japanese government's massive fiscal spending plan has refocused market attention on the sustainability of public finances. Against the backdrop of weak economic performance, investor confidence in yen-denominated assets has weakened, thus suppressing the yen's safe-haven appeal.
Meanwhile, the general rise in risk assets boosted risk appetite, further reducing capital flows into the yen. However, as Japan's corporate price index showed inflation remaining above historical averages, market expectations for a Bank of Japan interest rate hike quickly intensified.
Bank of Japan Governor Kazuo Ueda recently pointed out that the economic and price outlook is gradually meeting the conditions for a potential interest rate hike, prompting the market to begin positioning itself for such a path. Ahead of the crucial meeting, investors are generally avoiding establishing overly strong short positions, allowing the yen to maintain a degree of resilience.
On the other hand, the US dollar continued to be under pressure overall. The Federal Reserve lowered interest rates this week and hinted at maintaining room for further easing, with the chairman's dovish remarks keeping the dollar near a two-month low. Concerns about downside risks in the labor market were interpreted by the market as the Fed's unwillingness to continue its tightening efforts, which directly suppressed any dollar rebound.
With the Federal Reserve leaning dovish while the Bank of Japan leans towards tightening, the upside potential of the USD/JPY pair has been limited, and market sentiment has clearly turned cautious as investors await the Bank of Japan's key policy announcements next week.
An analyst from a Japanese foreign exchange firm said, "Fiscal uncertainty has weakened the yen's safe-haven appeal, but the possibility of the Bank of Japan raising interest rates earlier than expected leaves short sellers with little room to further depress the yen."
One analyst pointed out: "The US dollar is generally weak, while the Bank of Japan may turn to tightening. The structural risks of the USD/JPY exchange rate are beginning to increase, and short-term volatility will still depend on policy signals."
From a daily chart perspective, the 156.00 to 156.20 area constitutes a major resistance zone for short-term upward movement. If the exchange rate breaks through and holds above this range, bulls may initiate a new round of short covering, targeting the 157.00 level, followed by the interim resistance at 157.50. If the momentum continues, there is even a chance to test the high of 158.00 reached in November.
However, as long as the exchange rate remains below the 156 level, upward pressure remains significant, and the short-term trend is likely to be one of consolidation. On the downside, 155.00 is a key psychological level. A daily close below this level would allow the bears to regain control and could push the exchange rate quickly back to the monthly low of 154.35.
After breaking below 154.00, the market will focus on the strong support level of 153.60. If it continues to weaken, it may even fall back to a deeper support area below 152.00. The overall price structure shows obvious two-way game characteristics, and the market is waiting for clear directional guidance from the Bank of Japan meeting.
Editor's Note:
The current USD/JPY exchange rate movement is essentially a volatile pattern resulting from a combination of fiscal pressures, market risk appetite, and policy divergence. A potential interest rate hike by the Bank of Japan provides substantial support for the yen, while the Federal Reserve's dovish shift continues to weaken the overall attractiveness of the dollar.
This has resulted in a "weak yet strong" structure for the yen, which should have been influenced by safe-haven demand. The core variable truly influencing the medium-term trend will be whether the Bank of Japan meeting releases a clear signal regarding the pace of interest rate hikes. If the policy path becomes clearer, the USD/JPY exchange rate may see a directional breakout; otherwise, the exchange rate will remain in a state of repeated fluctuations.
The Japanese government's massive fiscal spending plan has refocused market attention on the sustainability of public finances. Against the backdrop of weak economic performance, investor confidence in yen-denominated assets has weakened, thus suppressing the yen's safe-haven appeal.
Meanwhile, the general rise in risk assets boosted risk appetite, further reducing capital flows into the yen. However, as Japan's corporate price index showed inflation remaining above historical averages, market expectations for a Bank of Japan interest rate hike quickly intensified.
Bank of Japan Governor Kazuo Ueda recently pointed out that the economic and price outlook is gradually meeting the conditions for a potential interest rate hike, prompting the market to begin positioning itself for such a path. Ahead of the crucial meeting, investors are generally avoiding establishing overly strong short positions, allowing the yen to maintain a degree of resilience.
On the other hand, the US dollar continued to be under pressure overall. The Federal Reserve lowered interest rates this week and hinted at maintaining room for further easing, with the chairman's dovish remarks keeping the dollar near a two-month low. Concerns about downside risks in the labor market were interpreted by the market as the Fed's unwillingness to continue its tightening efforts, which directly suppressed any dollar rebound.
With the Federal Reserve leaning dovish while the Bank of Japan leans towards tightening, the upside potential of the USD/JPY pair has been limited, and market sentiment has clearly turned cautious as investors await the Bank of Japan's key policy announcements next week.
An analyst from a Japanese foreign exchange firm said, "Fiscal uncertainty has weakened the yen's safe-haven appeal, but the possibility of the Bank of Japan raising interest rates earlier than expected leaves short sellers with little room to further depress the yen."
One analyst pointed out: "The US dollar is generally weak, while the Bank of Japan may turn to tightening. The structural risks of the USD/JPY exchange rate are beginning to increase, and short-term volatility will still depend on policy signals."
From a daily chart perspective, the 156.00 to 156.20 area constitutes a major resistance zone for short-term upward movement. If the exchange rate breaks through and holds above this range, bulls may initiate a new round of short covering, targeting the 157.00 level, followed by the interim resistance at 157.50. If the momentum continues, there is even a chance to test the high of 158.00 reached in November.
However, as long as the exchange rate remains below the 156 level, upward pressure remains significant, and the short-term trend is likely to be one of consolidation. On the downside, 155.00 is a key psychological level. A daily close below this level would allow the bears to regain control and could push the exchange rate quickly back to the monthly low of 154.35.
After breaking below 154.00, the market will focus on the strong support level of 153.60. If it continues to weaken, it may even fall back to a deeper support area below 152.00. The overall price structure shows obvious two-way game characteristics, and the market is waiting for clear directional guidance from the Bank of Japan meeting.
Editor's Note:
The current USD/JPY exchange rate movement is essentially a volatile pattern resulting from a combination of fiscal pressures, market risk appetite, and policy divergence. A potential interest rate hike by the Bank of Japan provides substantial support for the yen, while the Federal Reserve's dovish shift continues to weaken the overall attractiveness of the dollar.
This has resulted in a "weak yet strong" structure for the yen, which should have been influenced by safe-haven demand. The core variable truly influencing the medium-term trend will be whether the Bank of Japan meeting releases a clear signal regarding the pace of interest rate hikes. If the policy path becomes clearer, the USD/JPY exchange rate may see a directional breakout; otherwise, the exchange rate will remain in a state of repeated fluctuations.
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