The Japanese yen (JPY) continued its buying spree during Monday's Asian trading session, with the USD/JPY pair falling to a low of 155.00. Market focus is on the upcoming Bank of Japan (BoJ) policy meeting on December 18-19, and the potential interest rate decision announced by Governor Kazuo Ueda.

The recent rise in market expectations for a BoJ rate hike is mainly driven by the following factors: First, Japan's inflation remains above the 2% target level; second, confidence in Japan's large-scale manufacturing sector has improved. According to the quarterly Tankan survey released on Monday, the large-scale manufacturing business sentiment index rose from 14.0 in the previous quarter to 15.0, and the manufacturing outlook also rose from 12.0 to 15.0.

Businesses generally cited reduced uncertainty surrounding US trade policy and continued strong demand in the high-tech sector as key factors supporting business confidence. The Bank of Japan Governor also stated that the Bank of Japan is close to achieving its inflation target, further reinforcing market expectations for a December rate hike.

At the same time, Japanese Prime Minister Sanae Takaichi's massive fiscal spending plan has sparked market concerns about the deterioration of Japan's public finances, which has put some downward pressure on the yen.

Regarding the US dollar, buying interest was limited due to rising expectations of future interest rate cuts by the Federal Reserve and the delayed release of key US economic data caused by the government shutdown.

Trump's comments about his candidate potentially becoming the next Federal Reserve Chairman and his inclination to cut interest rates also put pressure on the dollar. The divergence in expected US-Japan interest rate differentials continues to support safe-haven demand for the yen.

From a technical perspective, USD/JPY is under short-term pressure near the 100-hour simple moving average (SMA), and failed to break through the 156.00 level effectively, indicating that the bears are in control in the short term.

The daily chart oscillator suggests that the price decline may find support at the psychological level of 155.00. If this level is broken, the price may accelerate its decline to the monthly low of 154.30 and further test the psychological level of 154.00.

On the upside, if USD/JPY recovers and holds above the 100-hour SMA and breaks through the previous high of 156.10, it may trigger a short-term pullback, with bulls focusing on the 157.00 area.


Editor's Note:

Based on a comprehensive assessment of fundamentals and technical factors, the Japanese yen is expected to strengthen in the short term, while the US dollar will face downward pressure. BoJ rate hike expectations, improved manufacturing sentiment, and a divergence in expected interest rate differentials between the US and Japan are supporting the yen's strength. Key levels to watch are the 155.00 support level and potential technical rebound opportunities, while also being wary of the risk of resistance at the dollar's short-term rebound.